Abelein v. Comm'r

T.C. Memo. 2004-274

UNITED STATES TAX COURT

SUSAN L. ABELEIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19707-02. Filed December 2, 2004.

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

for petitioner.

Robert V. Boeshaar and Julie L. Payne, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: This case arises from a request for relief

under section 60151 with respect to petitioner’s 1982, 1983,

1984, 1985, and 1986 taxable years. Respondent determined

1
All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
 - 2 -

petitioner was not entitled to any relief under section 6015.

Petitioner timely filed a petition seeking review of respondent’s

determination. After concessions,2 the issue for decision is

whether petitioner is entitled to relief under section 6015(b) or

(f) for 1982, 1983, 1984, 1985, and 1986.

FINDINGS OF FACT

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

The first, second, and third stipulations of facts are

incorporated herein by this reference. Petitioner resided in

Boring, Oregon, when her petition in this case was filed.

Petitioner’s Education

Petitioner attended 1 year of college and then enrolled in a

1-year licensed practical nurse (LPN) program. Petitioner

graduated from the program and worked as an LPN for several

years. Petitioner eventually attended a registered nursing (RN)

program and is currently employed as an RN. Petitioner has

worked as an RN in triage, dermatology, internal medicine,

obstetrics and gynecology, and hospice care. Petitioner has

never taken any courses in finance, bookkeeping, or tax.

2
At trial, the Court reserved ruling on Exhibit 243-P and
ordered the parties to brief the issue of its admissibility. In
his opening brief, respondent conceded the admissibility of
Exhibit 234-P. From the descriptions of the exhibit in the
transcript and the brief, and based on our review of Exhibits
234-P and 243-P, however, it is clear respondent intended to
concede the admissibility of Exhibit 243-P. Consequently, we
shall treat respondent’s concession on brief as a concession with
respect to Exhibit 243-P.
 - 3 -

Petitioner’s Relationship With Daniel Abelein

Petitioner and Daniel Abelein (Mr. Abelein) married in 1971.

As of the date of trial, they were still married and living

together.

Petitioner generally had no desire to understand and no

interest in business matters and did not attempt to understand

business documents or read fine print. Petitioner was, however,

responsible for paying the household bills, and, during the years

at issue, she did so from her joint account with Mr. Abelein.

According to petitioner, although Mr. Abelein made all of the

family’s financial decisions,3 petitioner and Mr. Abelein decided

on and saved for large purchases together.

Petitioner sometimes disagreed with Mr. Abelein’s decisions

but was never threatened by Mr. Abelein into making investments,

signing their tax returns, or signing checks. Mr. Abelein never

deceived petitioner about their finances or hid mail from her.

Mr. Abelein answered petitioner honestly if she asked him about

their finances. Mr. Abelein never abused petitioner.

During the years at issue, petitioner and Mr. Abelein lived

in the same house that they built in 1978, drove used cars, took

3
Mr. Abelein graduated from high school and completed 2
years of college and an apprenticeship as an electrician. Mr.
Abelein worked as an electrician and recently started his own
general contracting company. As of 1986, Mr. Abelein had no
formal education in finance or tax and no experience in cattle
ranching or selling cattle.
 - 4 -

inexpensive vacations, and had no investments other than their

Hoyt partnership investments and a Hoyt individual retirement

account (IRA).

Hoyt Partnerships

Walter J. Hoyt III (Mr. Hoyt) was the son of a prominent

Shorthorn cattle breeder who, along with other members of his

family, organized, promoted, and operated more than 100 cattle

breeding partnerships from 1971 to 1998. Each partnership was

organized and marketed in the same manner, and Mr. Hoyt served as

the general partner of each partnership. For an overview of the

Hoyt organization, 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;

Durham Farms #1 v. Commissioner, T.C. Memo. 2000-159, affd. 59

Fed. Appx. 952 (9th Cir. 2003); River City Ranches #4 v.

Commissioner, T.C. Memo. 1999-209, affd. 23 Fed. Appx. 744 (9th

Cir. 2001).

Investment in Durham Genetics Engineering 1985-1 Ltd.

In 1985 Mr. Abelein learned of the Hoyt organization from

his brother. After speaking with another friend who had invested

in the Hoyt partnerships, Mr. Abelein contacted an accountant to

inquire whether the investment was legal. Although Mr. Abelein

did not pay the accountant or provide the accountant with any of

the Hoyt promotional materials, the accountant advised him the
 - 5 -

Hoyt partnership was legal. Mr. Abelein also contacted a local

Internal Revenue Service (IRS) agent to determine whether the

investment was legal. The agent would not discuss the Hoyt

investment with Mr. Abelein and only answered Mr. Abelein’s

general questions regarding the relationship of the Federal

Government and the cattle industry.

Before investing, petitioner reviewed a Hoyt brochure and

had access to other Hoyt materials. Petitioner and Mr. Abelein

also attended a Hoyt partnership meeting where two Hoyt

representatives were present. Mr. Abelein asked petitioner to go

to the meeting because he wanted petitioner to hear about the

Hoyt organization directly from those involved in the company

rather than from him.

Mr. Abelein was very forthcoming towards petitioner with

respect to what he knew about the Hoyt partnerships. He

explained to petitioner that they would claim losses from the

partnership on their joint tax returns and should not expect to

earn a profit until the 8th to 10th year of the partnership.

Petitioner knew that she and Mr. Abelein could get refunds from

previous years’ tax returns and invest them in the Hoyt cattle

business. Petitioner and Mr. Abelein agreed that they should

invest in the Hoyt organization to help pay for their children’s

college tuition.
 - 6 -

In 1985 both petitioner and Mr. Abelein signed three

separate subscription agreements for series A, B, and C units in

the Timeshare Breeding Service 1985-1 Ltd., also known as Durham

Genetics Engineering 1985-1 Ltd. (hereinafter DGE), partnership.

Mr. Abelein asked petitioner to sign the necessary subscription

agreements to invest and become partners in the Hoyt partnership.

Mr. Abelein did not threaten petitioner to induce her to sign the

Hoyt agreements. Each subscription agreement stated that the

parties’ signatures evidenced their intent to subscribe to the

units and to enter into a partnership agreement, and the

subscription agreement for series A units also granted Mr. Hoyt a

power of attorney over partnership matters. Mr. Hoyt signed the

partnership agreement as attorney in fact for petitioner and Mr.

Abelein.

On all three subscription agreements for DGE, Mr. Abelein

signed on the line for “subscriber” to the investment. On the

DGE subscription agreements for series B and C units, petitioner

signed on the line for “Signature of Spouse Subscriber if

purchase is made jointly”. On the series A agreement, a

checkmark was placed on the line next to “community property”, an

ownership option which only required one signature. Petitioner

nevertheless signed on the line indicated for “Signature of

Spouse” on the series “A” agreement. This agreement also

contained the following language: “The UNDERSIGNED: * * *
 - 7 -

Recognize the Partnership has no history of operations or

earnings and this investment therein is a speculative venture,

and if they elect to participate, they may lose the total amount

of their investment * * *”.

DGE issued a Schedule K-1, Partner’s Share of Income,

Credits, Deductions, etc., for 1986 and an amended Schedule K-1

for 1985 to petitioner and Mr. Abelein that listed them both as

partners. Petitioner and Mr. Abelein also received Schedules K-1

from their other Hoyt investments each year from 1987 to 1995

that always listed both petitioner and Mr. Abelein as partners.4

Petitioner never questioned why she was listed as a partner or

made any effort to remove her name from partnership-related

documents.

After investing in DGE, Mr. Abelein attended partnership

meetings at least once a month and asked petitioner to attend

with him. Petitioner attended approximately half of the

meetings. Petitioner did not ask any questions at the meetings.

In 1992 or 1993, petitioner and Mr. Abelein also visited the Hoyt

ranches.

4
From 1985 through 1996, petitioner and Mr. Abelein invested
in several other Hoyt partnerships: Durham Genetic Engineering
1986-A, Florin Farms #4, and Shorthorn Genetic Engineering 1985-
1. The record does not disclose whether the Abeleins invested in
these partnerships jointly or separately.
 - 8 -

The Abeleins’ Treatment of Hoyt Documents

The Abeleins received correspondence from the Hoyt

organization, including monthly newsletters, advertisements, and

newspaper articles which informed them of recent developments in

the cattle breeding industry and events taking place within the

Hoyt organization. Mr. Abelein would typically read the

correspondence and then leave it for petitioner to read or file

with their other Hoyt-related materials. Petitioner looked at

the pictures and read the social news in the correspondence but

chose not to read the materials that were business-related or

contained a lot of words. Petitioner had access to the

correspondence at all times.

In addition, the Abeleins received a brochure entitled “The

1,000 lb. Tax Shelter, A ROUND-UP OF DATA AND A QUICK COURSE IN

CATTLE BREEDING TAX SHELTERS” from the Hoyt organization. The

“Specific Risks Involved” section of the brochure stated: “A

change in the tax law 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 back the tax savings, with penalties

and interest.”5 The brochure highlighted that the partnerships

5
This same language was used in the “Registered Livestock
Purchase Guide”, another Hoyt brochure petitioner received. This
brochure also compared investing in a Hoyt partnership to a
roller coaster ride and cautioned: “The cattle business today
cannot be separated from tax law any more than cattle can be
separated from grass and water. Don’t have anything to do with
(continued...)
 - 9 -

would be “subject to constant audits by the IRS”. The brochure

even warned “If you don’t have a tax man who knows you well

enough to give you specific personal advice as to whether or not

you belong in the cattle business, stay out”, and “Don’t have

anything to do with any aspect of the cattle business without

thorough tax advice”. The brochure also echoed the language of

the subscription agreements, noting: “If you invest in a cattle

partnership, you may lose every last dime you put into it.”

Mr. Abelein occasionally asked petitioner to follow up on

the Hoyt information they received. Mr. Abelein asked petitioner

to call the Hoyt organization and to ask questions for him about

the materials. Mr. Abelein also reviewed bills from the Hoyt

organization and made payment decisions when necessary, including

decisions about additional participation in Hoyt opportunities.

Mr. Abelein explained to petitioner what the bills were for and

told or asked her to pay them.

Petitioner wrote numerous checks to the Hoyt organization

from her joint account with Mr. Abelein, including a check for

$9,770 in 1986. When the Hoyt bills differed from petitioner’s

expectations, she questioned the discrepancies and asked Mr.

Abelein to discuss them with the Hoyt organization. According to

5
(...continued)
any aspect of the cattle business without having a good tax pro
working with you all the time as a continuing part of the deal.”
 - 10 -

petitioner, she relied on Mr. Abelein because she felt he had

more business sense than she did.

Tax Returns

Petitioner and Mr. Abelein filed joint Federal income tax

returns for 1982, 1983, 1984, 1985, and 1986. On or about May,

28, 1986, petitioner and Mr. Abelein filed Form 1045, Application

for Tentative Refund, on which they carried back an investment

credit from DGE and applied it to their 1982, 1983, and 1984

taxable years. Petitioner and Mr. Abelein received refunds of

$4,871, $4,573, and $3,229 for 1982, 1983, and 1984,

respectively. As a result, petitioner and Mr. Abelein paid no

income taxes for those years.

On their Federal income tax returns for 1982-86, petitioner

and Mr. Abelein reported the following:

Total income Sch. E IRA Investment
Year before Sch. E loss loss contribution credit

1982 $42,903 -- -- --
1983 45,416 -- -- --
1984 38,725 -- -- --
1985 41,146 $24,216 -- $9
1986 44,013 20,180 $2,000 62

The Schedule E, Supplemental Income Schedule, losses were the

losses attributable to DGE that were allocated to petitioner and

Mr. Abelein on the Schedules K-1 they received from the Hoyt

organization. The IRA contribution represented an amount

allegedly contributed to an IRA established for petitioner and

Mr. Abelein.
 - 11 -

Before petitioner and Mr. Abelein invested in the Hoyt

partnerships, Mr. Abelein prepared the returns himself or had a

tax return preparer or accountant prepare the returns. After

petitioner and Mr. Abelein invested in the Hoyt partnerships, the

Tax Office of W.J. Hoyt Sons Management Company prepared their

returns. When Mr. Abelein received the completed returns from

the Hoyt organization, he looked over the returns and signed

them. Petitioner also signed the returns. Petitioner knew she

was not allowed to deduct expenses on the returns that she did

not incur and that it was important to review the returns before

she signed them. Mr. Abelein did not threaten petitioner to

obtain her signature on the returns.

Petitioner could identify the Hoyt-related items on their

1985 and 1986 returns. Petitioner even asked Mr. Abelein about

the numbers on their 1985 Form 3468, Computation of Investment

Credit, which accompanied their 1985 tax return, because she did

not understand where they came from. In later years, petitioner

asked Mr. Abelein other questions about the effect of the

investment on their tax returns, including “How can you legally

go back on your taxes?” and “How can you have so many deductions

when you really don’t have that many kids?”

The Hoyt Partnership Litigation and Settlement

The Commissioner initiated audits of the Hoyt partnerships,

including but not limited to DGE, and sent appropriate notices to
 - 12 -

the partners, including petitioner and Mr. Abelein.6 Mr. Hoyt,

the tax matters partner for the partnerships, represented the

Hoyt partnerships during the audits.

As a result of the audits, the Commissioner proposed

adjustments to the Hoyt partnership tax returns. The Hoyt

partnerships filed petitions in this Court to contest the

partnership adjustments. The partnership-level proceedings were

resolved as a result of our opinions in Shorthorn Genetic Engg.

1982-2, Ltd. v. Commissioner, T.C. Memo. 1996-515, and Bales v.

Commissioner, T.C. Memo. 1989-568 (involving 26 dockets filed by

partners in similar Hoyt partnerships that were tried as test

cases and covered taxable years before 1982), and a memorandum of

understanding between the IRS and Mr. Hoyt dated May 20, 1993

(the settlement agreement), that set forth the basis for settling

all Hoyt cattle partnership cases for 1980 through 1986.

In Bales v. Commissioner, supra, we held, inter alia, that

although the Hoyt partnerships at issue were not lacking in

economic substance and would be respected for tax purposes,

6
For example, on Sept. 26, 1988, respondent sent petitioner
and Mr. Abelein a notice of beginning of an administrative
proceeding at the partnership level concerning the audit of DGE
for the taxable year 1986. On Nov. 21, 1988, respondent sent
petitioner and Mr. Abelein a notice of beginning of an
administrative proceeding at the partnership level concerning the
audit of DGE for the taxable year 1985. On Oct. 1, 1990,
respondent sent petitioner and Mr. Abelein a notice of final
partnership administrative adjustment concerning the audit of DGE
for the taxable year 1986.
 - 13 -

adjustments to the Hoyt partnerships’ proportionate shares of

losses generated from the acquisition, management, and sale of

Hoyt cattle were required, and the recalculated losses were

deductible by the limited partners to the extent of the partners’

adjusted bases.

The settlement agreement, which was executed after we issued

Bales in 1989, provided, in pertinent part, as follows:

• deductions for contributions to an Individual
Retirement Arrangement -- also called an
Investment Retirement Account -- are limited to
cash actually paid to custodial banks on or before
the due date of the return for which the deduction
is to be claimed.

* * * * * * *

• The total number of cattle in service and subject
to depreciation by the investor partnerships in
each of the following respective years is

1980 -- 1,736
1981 -- 2,463
1982 -- 2,388
1983 -- 2,932
1984 -- 3,476
1985 -- 4,024
1986 -- 6,409

• For Federal income tax purposes, all the cattle
are adult breeding cattle, each having an original
depreciable basis of $4,000.

• The number of cattle to be depreciated during any
year will be determined by the following method:

" The depreciable cattle in the herd of each
investor partnership will be adjusted by
multiplying the number listed in the
partnership’s books and records by the ratio
of the aggregate number of cattle in service
in all the partnerships (as indicated
 - 14 -

immediately above) over the aggregate number
of cattle listed in the partnerships’ books
and records and subject to depreciation.

For example, in the year 1980, the books
and records of Florin Farms # 1 indicate
that the partnership claimed 149 head of
cattle subject to depreciation. The
aggregate number of cattle listed in the
depreciation schedules of all the
investor partnerships was 4,659. For
purposes of this case, then, Florin
Farms # 1 would be considered to have 56
head of cattle subject to depreciation,
computed as follows:

149 x 1,736 = 56
4,659

• Depreciation for all cattle placed in service in
1980 will be computed using the straight line
method and a 5 year useful life -- without regard
to the ADR system, or any other methods previously
used.

• All cattle which were already in partnerships on
January 1, 1980, will be considered placed in
service in 1977. Such cattle would, therefore, be
eligible for depreciation for only 2 years -- 1980
and 1981. They would then be considered fully
depreciated.

• Depreciation for all cattle placed in service
after 1980 will be computed using the Accelerated
Cost Recovery System, considering the cattle 5-
year property.

• All purchases of cattle after 1981 are in the year
the partnership is formed.

• Investment tax credit will be allowed on the
number of cattle in service during the first year
of the partnership’s existence (as revised by the
formula discussed above), times $4,000 per head.
Cattle will be considered placed in service in the
year the partnership is formed.

• All cattle purchased are new section 38 property.
 - 15 -

* * * * * * *

• Satisfaction of obligations for interest,
principal payments and management fees by
transferring calves and culled cows will
constitute ordinary income to the investor
partnerships. This convention is consistent with
the Tax Court’s decision in Bales v. Commissioner,
which provides that

" calves are not section 1231(a) property; and

" although culled cattle are section 1231(a)
property, the gain on which may be long term
capital gain (depending on the holding
period), depreciation allowed must be
recaptured as ordinary income under the
provisions of section 1245.

* * * * * * *

• For all years after 1980, Management Company is
comprised of Mr. Hoyt, who is entitled to 15% of
the profits; and the 24 investor partnerships in
existence at December 31, 1981.

" The investor partnerships are each entitled
to 1/24 of the remaining 85% of the profits.

" The investor partnerships are each entitled
to 1/24 of 100% of any net losses.

• Each partner’s profit and loss sharing percentage
is determined annually by comparing the partner’s
capital account to the aggregate of the capital
accounts of all partners in the partnership. This
determination is made based on the total capital
owned, not the total capital originally
subscribed.

• Partners in the investor partnerships are divided
into two categories:

" Partners who continue to honor their note
obligations to Ranches, and who continue to
participate in the Hoyt Cattle partnership.
For purposes of this memorandum, will be
referred to as the “active partners.”
 - 16 -

" Partners who have walked away from their note
obligations and/or who no longer participate
in the partnership. For purposes of this
memorandum, will be referred to as the
“inactive partners.”

• The determination of when and whether a partner is
active or inactive and the status of the partner’s
ownership interest will be made using all
appropriate records of Ranches, the investor
partnerships and the individual partners
including, but not limited to, Ranches’ note
records; whether or not Schedules K-1 were issued
to partners; whether the partners continued to
claim items from the partnership on Federal income
tax returns; correspondence; and Forms 1099.

• The amount of liabilities assumed personally by
the partners during the first year of the
partnership will be based on original subscription
agreements, and will be provided by Walter J. Hoyt
III within one week after the partnership
spreadsheet is submitted to him for review and/or
correction.

• For Federal income tax purposes, the maximum
amount of partnership debt which can be assumed by
all partners in an investor partnership is
determined by multiplying the number of cattle in
service during the first year of the partnership’s
existence -- as indicated above -- by the fair
market value of the cattle for Federal income tax
purposes, $4,000.

For example, Poison Creek Ranches # 2 is
considered to have put in service 118 head of
cattle in 1981. The cost basis of the cattle
for purposes of depreciation is $4,000 per
head. Therefore, the maximum amount of the
note due to Ranches incident to depreciation,
and which is includible in the partner’s
basis is $472,000, calculated as follows:

Cattle In Service 118
Cost Basis (per head) $ 4,000
Total Partnership Note $472,000
Includible in Basis
 - 17 -

• All partners who originally assumed personal
liability for a portion of the partnership debt
during the first year of the partnership --
whether they are now determined to be active or
inactive partners -- will be assigned a share of
the lower amount of recognized partnership debt
described above. Each partner’s share will be the
exact same percentage as his/her share of the
partnership debt originally assumed.

* * * * * * *

• Inactive partners are deemed to have liquidated
their respective partnership interest when they
abandon it, according to the following guidelines:

" The amount realized by partners on the
liquidation of their partnership interest
will be the amount of the assumed liability
for which they remained liable when they
abandoned their interest in the partnership.
This amount is the partner’s share of the
lower recognized partnership debt described
above.

" The deemed liquidation of partnership
interest by inactive partners will occur on
December 31 of the year they become inactive,
as described above.

• In computing “At Risk,” active partners are
entitled to include their prorated share of
partnership debt which was previously attributable
to inactive partners for purposes of “At Risk” and
basis. Active partners assume this additional
debt on the date an inactive partner is deemed to
have liquidated his/her partnership interest, as
described in the immediately preceding paragraph.

• Profits, losses and credits -- after considering
Mr. Hoyt’s share -- are allocated strictly on the
basis of capital account. This means that each
partner’s interest in the credits, profits and/or
loss is calculated annually by comparing the
partner’s capital account to the aggregate of the
capital accounts of all partners in the
partnership.
 - 18 -

For purposes of computing a partner’s capital
account, all partners are entitled to include
their share of partnership debt for which they
assumed personal liability, until they liquidate
their interest in the partnership.

• Any partner having a capital account below zero
has a basis in the partnership below zero.

Pursuant to, and in accordance with, the settlement

agreement and our opinion in Shorthorn Genetic Engg. 1982-2, Ltd.

v. Commissioner, T.C. Memo. 1996-515, the capital account of

petitioner and Mr. Abelein was recomputed, and computational

adjustments were made to the distributive shares of Hoyt

partnership losses claimed by petitioner and Mr. Abelein,

resulting in deficiencies for each of the years at issue. The

adjustments were primarily attributable to the fact that the Hoyt

organization had sold more cattle to the various Hoyt limited

partnerships than it actually owned, see id., and had failed to

properly account for income generated by the sales of calves in

calculating partnership losses, see Bales v. Commissioner, T.C.

Memo. 1989-568. On March 6, 1998, respondent mailed petitioner

and Mr. Abelein a letter that explained how respondent’s

examination of DGE’s partnership returns affected the Abeleins’

income tax liability for taxable years 1982 through 1986.7

7
Respondent’s adjustments resulted in reductions of the
Schedule E losses and investment credits the Abeleins claimed
and a disallowance of their IRA contribution deduction so that
the Abeleins’ tax liability was increased for the taxable years
in issue as follows: $4,871 for 1982; $4,573 for 1983; $3,229
(continued...)
 - 19 -

Petitioner and Mr. Abelein handled IRS correspondence in the

same way as the Hoyt materials so that it was available to

petitioner at all times.

Over the years, petitioner told Mr. Abelein she did not want

to be a part of the partnership anymore. Despite her concerns

and notice of the partnership audits, petitioner made no efforts

to extricate herself from the Hoyt partnership and continued to

invest in the organization with Mr. Abelein.

Petitioner’s Innocent Spouse Claim

On or around July 7, 2000, petitioner submitted a Form 8857,

Request for Innocent Spouse Relief (And Separation of Liability

and Equitable Relief), on which she requested relief pursuant to

section 6015(b) for the taxable years 1982 through 1996.8

On August 23, 2001, respondent sent petitioner a preliminary

determination letter denying petitioner’s request for relief

under section 6015(b), (c), and (f) for taxable years 1982

through 1986. Respondent denied relief on the basis that (1)

Petitioner had actual knowledge or reason to know of the item

giving rise to the understatement; (2) petitioner did not show

7
(...continued)
for 1984; $3,141 for 1985; and $2,992 for 1986.
8
On Nov. 14, 2000, respondent sent petitioner a letter
indicating her request for relief for 1987 through 1997 was
premature. On Aug. 9, 2001, respondent sent petitioner a letter
indicating her request for relief for tax years 1993 and 1995 was
premature.
 - 20 -

the erroneous items were attributable to her spouse; (3)

petitioner did not demonstrate that it would be inequitable to

hold her liable for the deficiency attributable to the

understatement; and (4) petitioner did not meet the marital

status requirements of section 6015(c). On September 17, 2001,

petitioner timely submitted a written appeal of respondent’s

determination.

On September 26, 2002, respondent issued a notice of

determination in which he concluded that petitioner did not

qualify for relief from joint and several liability under section

6015(b), (c), or (f). With respect to his determination under

section 6015(b), respondent stated that “You failed to meet all

the requirements of IRC section 6015(b); therefore, you do not

qualify for relief under the law.” With respect to his

determination under section 6015(f), respondent stated that “You

are not eligible for relief under the law since the majority of

the factors weighs against relief.”

On December 23, 2002, petitioner timely filed a petition

with this Court pursuant to section 6015(e) seeking review of

respondent’s determination with respect to section 6015(b) and

(f) for petitioner’s 1982-86 taxable years.9

9
We consider petitioner’s request for relief under sec.
6015(f) even though she originally requested relief on Form 8857,
Request for Innocent Spouse Relief (And Separation of Liability
and Equitable Relief), under sec. 6015(b) only. Respondent
(continued...)
 - 21 -

OPINION

In general, taxpayers filing joint Federal income tax

returns are each responsible for the accuracy of the return and

are jointly and severally liable for the full tax liability.

Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282

(2000). In certain circumstances, however, a taxpayer may obtain

relief from joint and several liability by satisfying the

requirements of section 6015.10

Section 6015(a)(1) provides that a spouse who has made a

joint return may elect to seek relief from joint and several

liability under section 6015(b) (dealing with relief from

liability for an understatement of tax on a joint return).

Section 6015(a)(2) provides that a spouse who is eligible to do

so may elect to limit that spouse’s liability for any deficiency

with respect to a joint return under section 6015(c). Relief

from joint and several liability under section 6015(b) or (c) is

available only with respect to a deficiency for the year for

9
(...continued)
treated the application as a request for relief under sec.
6015(b), (c), and (f) and denied relief under each subsection in
his preliminary and final determination letters. Petitioner does
not dispute respondent’s determination with respect to his denial
of sec. 6015(c) relief.
10
Sec. 6015 applies to tax liabilities arising after July
22, 1998, and to tax liabilities arising on or before July 22,
1998, that remain unpaid as of such date. Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(g), 112 Stat. 740.
 - 22 -

which relief is sought. Sec. 6015(b)(1)(D) and (c)(1); see H.

Conf. Rept. 105-599, at 252-254 (1998), 1998-3 C.B. 747, 1006-

1008. If relief is not available under either section 6015(b) or

(c), an individual may seek equitable relief under section

6015(f), which may be granted by the Commissioner in his

discretion.

In this case petitioner contends that she is entitled to

full relief from liability under section 6015(b) or (f).

Our jurisdiction to review petitioner’s request for relief

is conferred by section 6015(e), which allows a spouse who has

requested relief from joint and several liability to contest the

Commissioner’s denial of relief by filing a timely petition in

this Court. We address petitioner’s request under subsections

(b) and (f) of section 6015 in turn.

A. Section 6015(b)

Section 6015(b)(1) authorizes respondent to grant relief

from joint and several liability if the taxpayer satisfies each

requirement of subparagraphs (A) through (E). Section 6015(b)(1)

provides:

SEC. 6015(b). Procedures For Relief From Liability
Applicable to All Joint Filers.--

(1) In general.--Under procedures prescribed by
the Secretary, if--

(A) a joint return has been made for a
taxable year;
 - 23 -

(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;

(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,

then the other individual shall be relieved of
liability for tax (including interest, penalties, and
other amounts) for such taxable year to the extent such
liability is attributable to such understatement.

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

conjunctive. Therefore, if the requesting spouse fails to meet

any one of them, she does not qualify for relief. Alt v.

Commissioner, 119 T.C. 306, 313 (2002), affd. 101 Fed. Appx. 34

(6th Cir. 2004). Except as provided by section 6015, the

requesting spouse bears the burden of proving that she satisfies

each requirement of section 6015(b)(1).11 See Rule 142(a).

11
Petitioner does not contend that sec. 7491 applies to this
case and has not produced evidence to show she satisfied the
requirements of sec. 7491(a).
 - 24 -

Respondent does not dispute that petitioner meets the

requirements of subparagraphs (A) and (E) of section 6015(b)(1)

but contends that petitioner has not satisfied the requirements

of subparagraphs (B), (C), and (D) of section 6015(b)(1).

Petitioner disagrees.

With respect to subparagraph (B) of section 6015(b)(1),

petitioner argues that the understatement of tax is attributable

entirely to the erroneous items of Mr. Abelein because the

investment in DGE was not a joint investment, and Mr. Abelein was

solely responsible for the partnership investment. Respondent

argues that the understatement of tax is not solely attributable

to the erroneous items of Mr. Abelein because both petitioner and

Mr. Abelein owned the partnership interest in DGE, and petitioner

participated in the investment. Respondent relies on Ellison v.

Commissioner, T.C. Memo. 2004-57, to support his position.

In Ellison v. Commissioner, supra, we held that the taxpayer

failed to prove that the understatement of tax was solely

attributable to the erroneous items of the nonrequesting spouse

under section 6015(b)(1)(B) because the requesting spouse was a

partner in the Hoyt partnerships, agreed to invest in the Hoyt

partnerships, and did so jointly with her spouse. The taxpayer

in Ellison also signed partnership documents and checks payable

to the Hoyt organization and used funds from a joint account she

held with her spouse to invest in the partnership. The Hoyt
 - 25 -

organization also treated the taxpayer as a partner, issuing

Schedules K-1 that listed both the taxpayer and her spouse as

partners. Id.

The facts of Ellison are indistinguishable from those in the

present case and support the conclusion that the erroneous items

are not solely Mr. Abelein’s. Petitioner signed the partnership

documents required for her to become a partner and begin the

investment, and she indicated she was making the investment

jointly with Mr. Abelein. Petitioner and Mr. Abelein invested in

the Hoyt partnerships using funds from their joint bank account.

Petitioner wrote and signed personal checks that were payable to

the various Hoyt entities for their partnership interests. The

Hoyt organization viewed petitioner and Mr. Abelein as joint

investors.

Petitioner contends, however, that joint ownership of the

investment is not determinative of whether the erroneous item

giving rise to the understatement is attributable to one or both

spouses. Petitioner argues that the erroneous items should be

attributed to the individual who made the decisions relating to

the investment that produced those items and cites Rowe v.

Commissioner, T.C. Memo. 2001-325, to support her contention.

We reject petitioner’s argument because Rowe is

distinguishable from the present case. In deciding whether the

taxpayer in Rowe was entitled to section 6015(c) relief, we did
 - 26 -

not allocate the erroneous losses of the taxpayer’s spouse’s

farming activities to her, even though she was listed as a

proprietor on their joint returns, because she made no decisions

related to the farm, her spouse withheld relevant financial

documents from her, and other than attending occasional horse

shows to support her children, the taxpayer was not involved in

the farming activity.

In Capehart v. Commissioner, T.C. Memo. 2004-268, we also

rejected petitioner’s argument for reasons that are equally

applicable to the present case. In Capehart, the taxpayer was

involved in the Hoyt partnership that generated the erroneous

losses at issue, even though her spouse initiated the investment.

The taxpayer jointly invested in the partnership with her spouse,

met with Mr. Hoyt, toured the Hoyt ranches, received promotional

and informational materials from the Hoyt partnerships, became a

partner with her spouse by signing a subscription agreement, made

calls to the Hoyt organization to obtain answers to questions

about the investment, and signed the income tax returns prepared

by the Hoyt organization. Consequently, we held in Capehart that

the erroneous items giving rise to the understatements of tax

were attributable to the taxpayer and her spouse.

As in Capehart, the record demonstrates that petitioner was

actively involved, along with Mr. Abelein, in matters relating to

their investment in DGE so that Rowe is distinguishable.
 - 27 -

Petitioner and Mr. Abelein met Hoyt representatives, toured the

Hoyt ranches, received and read various promotional and

informational materials from the Hoyt partnerships, became

partners by signing the subscription agreements, attended Hoyt

partnership meetings, paid Hoyt bills, made phone calls to the

Hoyt organization, and reviewed and signed income tax returns

prepared by the Hoyt organization. Additionally, petitioner

admitted that she and Mr. Abelein agreed they should invest in

the Hoyt partnership. Regardless of whether Mr. Abelein proposed

the DGE investment to petitioner and at times petitioner simply

complied with Mr. Abelein’s requests out of lack of interest in

business matters, petitioner ultimately agreed to invest in the

partnership, invested jointly with Mr. Abelein, and actively

participated in the investment. This is sufficient for us to

find that the erroneous items giving rise to the understatement

of tax are attributable to both petitioner and Mr. Abelein.

Capehart v. Commissioner, supra; Bartak v. Commissioner, T.C.

Memo. 2004-83; Ellison v. Commissioner, T.C. Memo. 2004-57; see

also Mora v. Commissioner, 117 T.C. 279, 290 (2001); Doyel v.

Commissioner, T.C. Memo. 2004-35.

We conclude that petitioner has failed to prove that the

erroneous items giving rise to the understatement of tax are Mr.

Abelein’s alone. Because petitioner’s failure to satisfy the

requirement of subparagraph (B) of section 6015(b)(1) is
 - 28 -

sufficient for us to deny relief pursuant to that section, we

need not decide or address whether petitioner satisfied the

requirements of section 6015(b)(1)(C) and (D). However, for the

sake of completeness, we conclude that petitioner did not meet

the requirements of section 6015(b)(1)(C) and (D) for the reasons

set forth in our analysis of section 6015(f), infra.

Accordingly, we sustain respondent’s determination to deny

petitioner relief from joint and several liability under section

6015(b)(1).

B. Section 6015(f)

Section 6015(f) provides an alternative means of relief for

a requesting spouse who does not otherwise qualify for relief

under subsection (b) or (c) of section 6015. Sec. 6015(f)(2).

We review the Commissioner’s determination to deny equitable

relief under section 6015(f) using an abuse of discretion

standard. Butler v. Commissioner, 114 T.C. at 287-292. Under

this standard of review, we defer to the Commissioner’s

determination unless it is arbitrary, capricious, or without

sound basis in fact. Jonson v. Commissioner, 118 T.C. 106, 125

(2002), affd. 353 F.3d 1181 (10th Cir. 2003). The question of

whether the Commissioner’s determination was an abuse of his

discretion is a question of fact. Cheshire v. Commissioner, 115

T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002). A

requesting spouse bears the burden of proving that the
 - 29 -

Commissioner abused his discretion in denying relief under

section 6015(f).

Because we have determined petitioner does not qualify for

section 6015(b) relief, and petitioner does not seek review of

respondent's denial of relief under section 6015(c), we must

decide whether respondent abused his discretion in denying

petitioner relief from joint and several liability under section

6015(f). Cheshire v. Commissioner, supra at 198; Butler v.

Commissioner, supra at 292.

Pursuant to section 6015(f), the Commissioner has prescribed

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

determining whether the requesting spouse qualifies for relief

under that section.12 In this case, although the notice of

determination does not state that respondent utilized the

procedures specified in Rev. Proc. 2000-15, supra, to make his

determination that petitioner is not entitled to relief under

section 6015(f), the notice of determination refers to

respondent’s analysis of factors, and we assume that respondent’s

reference to factors in the notice of determination is to the

factors enumerated in Rev. Proc. 2000-15, supra. This Court has

upheld the use of the guidelines specified in Rev. Proc. 2000-15,

12
On August 11, 2003, the Commissioner issued Rev. Proc.
2003-61, 2003-32 I.R.B. 296, which supersedes Rev. Proc. 2000-15,
2000-1 C.B. 447. The new revenue procedure is effective for
requests for relief filed on or after Nov. 1, 2003, and
therefore, is inapplicable here.
 - 30 -

supra, and has analyzed the factors listed in Rev. Proc. 2000-15,

supra, in reviewing the Commissioner’s negative determination

under section 6015(f). See, e.g., Washington v. Commissioner,

120 T.C. 137, 147-152 (2003); Jonson v. Commissioner, supra at

125-126. Moreover, petitioner has not objected to the use of

these guidelines, and she has addressed the factors in her

posttrial briefs.

Rev. Proc. 2000-15, sec. 4.01, 2000-1 C.B. at 448, lists

seven threshold conditions that must be satisfied before the

Commissioner will consider a request for relief under section

6015(f). Respondent concedes that petitioner satisfies the seven

threshold conditions.

Rev. Proc. 2000-15, sec. 4.03, 2000-1 C.B. at 448, provides

that, in cases where the threshold conditions set forth in Rev.

Proc. 2000-15, sec. 4.01 have been satisfied but the requesting

spouse does not qualify for relief under Rev. Proc. 2000-15, sec.

4.02,13 2000-1 C.B. at 448, equitable relief may be granted under

section 6015(f) if, taking into account all facts and

circumstances, it is inequitable to hold the requesting spouse

liable. Rev. Proc. 2000-15, sec. 4.03(1) and (2), 2000-1 C.B. at

13
Rev. Proc. 2000-15, sec. 4.02, 2000-1 C.B. 447, 448, lists
the circumstances under which equitable relief under sec. 6015(f)
will ordinarily be granted in cases where a liability reported on
a joint return is unpaid. Because this case involves
deficiencies, not unpaid liabilities reported on joint returns,
Rev. Proc. 2000-15, sec. 4.02 does not apply. See Mellen v.
Commissioner, T.C. Memo. 2002-280.
 - 31 -

448-449, contains a list of positive and negative factors that

the Commissioner must take into account in determining, on the

facts and circumstances, whether to grant full or partial

equitable relief under section 6015(f). As Rev. Proc. 2000-15,

sec. 4.03 makes clear, no single factor is determinative in any

particular case, all factors are to be considered and weighed

appropriately, and the listing of factors is not intended to be

exhaustive. See also Washington v. Commissioner, supra at 148;

Jonson v. Commissioner, supra at 125.

Rev. Proc. 2000-15, sec. 4.03(1) lists the following six

positive factors that the Commissioner will weigh in favor of

granting equitable relief:

(a) Marital status. The requesting spouse is
separated * * * or divorced from the nonrequesting
spouse.

(b) Economic hardship. The requesting spouse
would suffer economic hardship (within the meaning of
section 4.02(1)(c) of this revenue procedure) if relief
from the liability is not granted.

(c) Abuse. The requesting spouse was abused by
the nonrequesting spouse, but such abuse did not amount
to duress.

(d) No knowledge or reason to know. In the case
of a liability that was properly reported but not paid,
the requesting spouse did not know and had no reason to
know that the liability would not be paid. In the case
of a liability that arose from a deficiency, the
requesting spouse did not know and had no reason to
know of the items giving rise to the deficiency.

(e) Nonrequesting spouse’s legal obligation. The
nonrequesting spouse has a legal obligation pursuant to
a divorce decree or agreement to pay the outstanding
 - 32 -

liability. This will not be a factor weighing in favor
of relief if the requesting spouse knew or had reason
to know, at the time the divorce decree or agreement
was entered into, that the nonrequesting spouse would
not pay the liability.

(f) Attributable to nonrequesting spouse. The
liability for which relief is sought is solely
attributable to the nonrequesting spouse.

Rev. Proc. 2000-15, sec. 4.03(2) lists the following six negative

factors that the Commissioner weighs against granting equitable

relief:

(a) Attributable to the requesting spouse. The
unpaid liability or item giving rise to the deficiency
is attributable to the requesting spouse.

(b) Knowledge, or reason to know. A requesting
spouse knew or had reason to know of the item giving
rise to a deficiency or that the reported liability
would be unpaid at the time the return was signed.
This is an extremely strong factor weighing against
relief. Nonetheless, when the factors in favor of
equitable relief are unusually strong, it may be
appropriate to grant relief under §6015(f) in limited
situations where a requesting spouse knew or had reason
to know that the liability would not be paid, and in
very limited situations where the requesting spouse
knew or had reason to know of an item giving rise to a
deficiency.

(c) Significant benefit. The requesting spouse
has significantly benefitted (beyond normal support)
from the unpaid liability or items giving rise to the
deficiency. See §1.6013-5(b).

(d) Lack of economic hardship. The requesting
spouse will not experience economic hardship (within
the meaning of section 4.02(1)(c) of this revenue
procedure) if relief from the liability is not granted.

(e) Noncompliance with federal income tax laws.
The requesting spouse has not made a good faith effort
to comply with federal income tax laws in the tax years
 - 33 -

following the tax year or years to which the request
for relief relates.

(f) Requesting spouse’s legal obligation. The
requesting spouse has a legal obligation pursuant to a
divorce decree or agreement to pay the liability.

The knowledge or reason to know factor, the economic hardship

factor, and the legal obligation factor in Rev. Proc. 2000-15,

sec. 4.03(2)(b), (d), and (f), respectively, are the opposites of

the knowledge or reason to know factor, the economic hardship

factor, and the legal obligation factor in Rev. Proc. 2000-15,

sec. 4.03(1)(d), (b), and (e), respectively. The attribution

factor in Rev. Proc. 2000-15, sec. 4.03(2)(a) is substantially

the opposite of the attribution factor in Rev. Proc. 2000-15,

sec. 4.03(1)(f). Consequently, in our review of the

Commissioner’s determination denying relief under section

6015(f), we have held that a finding with respect to the reason

to know, economic hardship, legal obligation, and attribution

factors ordinarily will weigh either in favor of or against

granting equitable relief under section 6015(f). Ewing v.

Commissioner, 122 T.C. 32, 45 (2004). We have also held that a

finding that a requesting spouse did not receive a significant

benefit from the item giving rise to the deficiency weighs in

favor of granting relief under section 6015(f). Id. Finally, we

treat evidence that the remaining positive and negative factors

are not applicable as evidence weighing neither in favor of nor

against granting equitable relief (i.e., as neutral). Id.
 - 34 -

In accordance with the above, we shall consider each of the

positive and negative factors enumerated in Rev. Proc. 2000-15,

sec. 4.03. We shall also consider whether any additional facts

alleged by the parties affect the analysis of whether respondent

abused his discretion in denying petitioner equitable relief

under section 6015(f).

1. Positive Factors

a. Marital Status

Petitioner is still married and living with Mr. Abelein.

Consequently, this positive factor does not apply. Ewing v.

Commissioner, supra at 46.

b. Economic Hardship

An analysis of economic hardship under Rev. Proc. 2000-15,

supra, is conducted using rules similar to those under section

301.6343-1(b)(4), Proced. & Admin. Regs., and focuses on the

requesting spouse’s inability to pay reasonable basic living

expenses. Rev. Proc. 2000-15, sec. 4.02(1)(c). Section

301.6343-1(b)(4)(ii), Proced. & Admin. Regs., provides that the

Commissioner will evaluate a requesting spouse’s claim of

economic hardship by considering any information offered by the

requesting spouse that is relevant to the determination,

including, but not limited to, the requesting spouse’s income,

assets and liabilities, age, ability to earn, responsibility for
 - 35 -

dependents, and the amount reasonably necessary for basic living

expenses.

Petitioner offered no evidence of her income, expenses,

assets, or liabilities other than her own testimony and that of

her spouse that they continued to live in the same house they

built in 1978, drove used cars, and took inexpensive vacations.

In the absence of corroborating evidence, we are not required to

accept petitioner’s self-serving testimony. Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986). Consequently, we conclude

that petitioner has failed to carry her burden of proving that

requiring her to pay the liabilities from which she seeks relief

would result in economic hardship within the meaning of section

301.6343-1(b)(4), Proced. & Admin. Regs. Because petitioner has

failed to establish that she will suffer an economic hardship, we

conclude that this positive factor does not apply.

c. Abuse by Nonrequesting Spouse

Mr. Abelein never abused petitioner, and he did not persuade

petitioner to invest in the Hoyt partnerships by threatening to

abuse her. This positive factor does not apply. Ewing v.

Commissioner, supra at 46; Washington v. Commissioner, 120 T.C.

at 149.

d. No Knowledge or Reason To Know

The tax liabilities at issue in this case arose from

deficiencies. Petitioner argues that she did not know or have
 - 36 -

any reason to know of the items giving rise to those

deficiencies. In order to ascertain the level of the requesting

spouse’s knowledge of the items giving rise to the deficiency for

purposes of section 6015(f), we must examine whether the

requesting spouse knew or had reason to know of the factual basis

for the denial of the deductions. Capehart v. Commissioner, T.C.

Memo. 2004-268; see also Mora v. Commissioner, 117 T.C. at 291-

292; King v. Commissioner, 116 T.C. 198, 204 (2001).

With respect to section 6015(f), our review of the record

convinces us that petitioner did not have actual knowledge of the

items giving rise to the deficiency. However, we still must

decide whether petitioner had reason to know of the items giving

rise to the deficiency. In order to resolve the issue, we must

examine whether and to what extent petitioner had reason to know

of the factual basis for respondent’s adjustment to the Hoyt

partnership loss deductions and the IRA deduction claimed by

petitioner and her husband during the years at issue.

At the time she filed her petition, petitioner resided in

Oregon. In the absence of a stipulation to the contrary, the

U.S. Court of Appeals for the Ninth Circuit is presumably the

proper venue for an appeal in this case. See sec. 7482(b)(2).

We believe that the Court of Appeals would require an analysis of

the “reason to know” requirement like the one it articulated in
 - 37 -

Price v. Commissioner, 887 F.2d 959, 963 (9th Cir. 1989).14

Consequently, we first examine whether petitioner had reason to

know of the items giving rise to the deficiency, applying the

same factors used in Price: (1) The spouse’s level of education;

(2) the spouse’s involvement in the family’s business and

financial affairs; (3) 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 (4) the

culpable spouse’s evasiveness and deceit concerning the couples’

finances. Id. at 965. If we conclude that petitioner did not

have reason to know, we next examine whether petitioner had

knowledge of sufficient facts to impose upon her a duty to

inquire. Id. Finally, we examine whether petitioner satisfied

her duty to inquire. Id.

In this case, petitioner, who graduated from both an LPN

course and an RN course, was actively involved in the family’s

financial affairs. She was responsible for paying the family’s

household bills, wrote and signed checks drawn on the joint

checking account, and, together with Mr. Abelein, decided on and

saved for large purchases.

14
We believe this to be so even though Price v.
Commissioner, 887 F.2d 959, 963 (9th Cir. 1989), involves a
different statute. For a discussion of the “reason to know”
analysis used in Price and its applicability, see Capehart v.
Commissioner, T.C. Memo. 2004-268.
 - 38 -

Mr. Abelein never deceived petitioner about their finances

or partnership investments or concealed financial or partnership

information from her. With respect to the Hoyt partnership

investments, Mr. Abelein encouraged petitioner to attend

partnership meetings, to call the Hoyt organization, and to pay

the Hoyt partnership bills.

Petitioner also had the opportunity to review the

promotional materials they received, but she chose not to do so.

See Morello v. Commissioner, T.C. Memo. 2004-181 (“We have

consistently applied the principle that the provisions providing

relief from joint and several liability are ‘designed to protect

the innocent, not the intentionally ignorant.’”) (quoting Dickey

v. Commissioner, T.C. Memo. 1985-478). Those promotional

materials warned potential investors that the promised tax

savings may be disallowed by the IRS and that potential investors

should consult independent tax advisers before making an

investment in the partnership. Neither petitioner nor Mr.

Abelein hired a competent professional to verify critical factual

representations made by the Hoyt organization. Moreover,

petitioner was aware of the large partnership deductions being

claimed on the tax returns, for not only was she able to identify

the Hoyt-related items on their returns, but, in later years, she

even questioned Mr. Abelein about the legitimacy of their

deductions and their ability to “go back on” their taxes. We
 - 39 -

conclude, therefore, that petitioner has not shown that she had

no reason to know of the items giving rise to the deficiency.

Even assuming we were to conclude that a reasonably prudent

person in petitioner’s position at the time she signed the

returns for the years at issue could not be expected to know the

facts leading to the disallowance of the Hoyt partnership

deductions and the IRA contribution deduction, we would still

conclude that petitioner failed to satisfy her duty of inquiry.

Petitioner and Mr. Abelein did not make any effort to verify the

most important and most basic facts essential for the viability

of the Hoyt partnership investments and their tax consequences.

For example, they conducted no investigation of whether the Hoyt

partnerships in which they were investing actually owned cattle

in sufficient numbers and with sufficient value to support the

projected loss deductions. They did not ask a knowledgeable tax

professional to investigate or verify that they would have

sufficient basis in their Hoyt partnership investments to claim

their distributive shares of partnership tax deductions.15 They

allowed the promoter of the Hoyt partnerships to prepare their

personal income tax returns, and they apparently never requested

or obtained verification that the IRA contribution claimed on

15
While Mr. Abelein testified he contacted an accountant and
an IRS agent about the legality of the Hoyt partnerships, he
admitted that he only discussed the partnerships in general terms
and that the IRS agent would not discuss the actual Hoyt
organization with him at all.
 - 40 -

their 1986 joint returns had actually been made by the

contribution deadline. We conclude, therefore, that this factor

weighs against granting equitable relief.

e. Nonrequesting Spouse’s Legal Obligation

Because petitioner is not separated or divorced from her

husband, this positive factor does not apply.

f. Liabilities Solely Attributable to Nonrequesting
Spouse

We concluded earlier in this opinion that, because

petitioner and Mr. Abelein were joint investors and petitioner

participated in the investment, the erroneous items giving rise

to the deficiency are items of both petitioner and Mr. Abelein.

Because petitioner has failed to establish that any of the items

giving rise to the deficiency are solely attributable to Mr.

Abelein, we conclude that this positive factor does not apply.

2. Negative Factors

a. Attributable to the Requesting Spouse

Respondent argues that the erroneous items giving rise to

the deficiencies are attributable to both petitioner and Mr.

Abelein. We agree with respondent’s argument for reasons stated

earlier in this opinion. The record adequately establishes that

the Hoyt partnership investments made by petitioner and Mr.

Abelein were joint investments and that petitioner actively
 - 41 -

participated in making those investments. This factor weighs

against granting petitioner equitable relief under section

6015(f).

b. Knowledge or Reason to Know

For the reasons stated in our analysis of the corresponding

positive factor, we conclude that petitioner had reason to know

of the items giving rise to the deficiencies in this case and/or

failed to satisfy her duty of inquiry regarding the items. This

factor weighs heavily against granting petitioner equitable

relief under section 6015(f). Rev. Proc. 2000-15, sec.

4.03(2)(b).

c. Significant Benefit

Petitioner argues she did not significantly benefit beyond

normal support from the Hoyt partnership losses and investment

tax credits giving rise to the deficiencies. Yet, because of the

investment, petitioner and Mr. Abelein received tax savings of

$18,806 they otherwise would not have received. In Doyle v.

Commissioner, T.C. Memo. 2003-96, affd. 94 Fed. Appx. 949 (3d

Cir. 2004), we held that a requesting spouse significantly

benefited from the items giving rise to the deficiency, which

were tax shelter deductions, because she received significant tax

refunds as a result of the items. Likewise, in this case,

petitioner and Mr. Abelein received substantial income tax

refunds as a result of the items giving rise to the deficiencies.
 - 42 -

That petitioner and Mr. Abelein decided to reinvest all or a

portion of their tax savings in DGE, rather than in a new home or

new cars, does not protect petitioner from a conclusion that she

and Mr. Abelein received a significant benefit in the form of

increased disposable cashflow. This negative factor applies and

weighs against granting petitioner’s claim for equitable relief

under section 6015(f). Ewing v. Commissioner, 122 T.C. at 44-45;

Capehart v. Commissioner, T.C. Memo. 2004-268.

d. Lack of Economic Hardship

As we noted in our discussion of the positive counterpart of

this factor, petitioner did not introduce credible evidence to

enable us to ascertain her current salary and other income,

assets, debts, and reasonable living expenses, although she was

in a position to do so. A taxpayer’s failure to call witnesses

and produce relevant documentary evidence within her control

supports an inference that such testimony and documentation would

not support the taxpayer’s position. Wichita Terminal Elevator

Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513

(10th Cir. 1947). Because of the negative inference that we draw

from petitioner’s failure to produce evidence of her current

financial condition, we conclude that requiring petitioner to pay

the liabilities from which she seeks relief would not result in

economic hardship as that term is defined under Rev. Proc. 2000-
 - 43 -

15, 2000-1 C.B. 447. Consequently, this negative factor applies

and weighs against granting petitioner equitable relief in our

analysis.

e. Noncompliance With Federal Income Tax Laws in
Subsequent Years

Respondent did not determine that this factor applies and

weighs against granting petitioner equitable relief. Moreover,

respondent did not argue in his posttrial briefs that petitioner

did not make a good faith effort to comply with her Federal

income tax obligations in the years subsequent to the ones at

issue here. Consequently, we conclude that this negative factor

does not apply. See Ewing v. Commissioner, supra at 46-47.

f. Requesting Spouse’s Legal Obligation

With respect to the positive counterpart to this factor, we

concluded that petitioner and Mr. Abelein were married during the

relevant times and remain so and that neither petitioner nor Mr.

Abelein had assumed sole responsibility to pay the liabilities at

issue in this case. These conclusions also dictate our treatment

of this factor. Because petitioner was not solely responsible

for paying the liabilities at issue in this case, this negative

factor does not apply.

3. Other Relevant Factors

Petitioner argues that in determining whether it is

inequitable to hold petitioner liable for the deficiency, we must

consider the complexity of the transactions and Mr. Hoyt’s
 - 44 -

intentional deception of petitioner about the underlying

circumstances that gave rise to the understatement. Although we

may consider other factors in addition to those set forth in Rev.

Proc. 2000-15, supra, we have previously rejected petitioner’s

argument and denied innocent spouse relief in cases where neither

spouse knew of the facts that provided the basis for the

disallowance of partnership losses on their joint returns.

Capehart v. Commissioner, supra; Bartak v. Commissioner, T.C.

Memo. 2004-83; Ellison v. Commissioner, T.C. Memo. 2004-57; Doyel

v. Commissioner, T.C. Memo. 2004-35. The purpose of section 6015

is to protect one spouse from the overreaching or dishonesty of

the other spouse. Bartak v. Commissioner, supra (citing Purcell

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

228 (1986)). Where the understatement is attributable to the

mistaken belief of both the requesting spouse and the other

spouse as to the legitimacy of the tax shelter deductions, we

have held that it is not inequitable to hold both spouses jointly

and severally liable. 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); Bartak v. Commissioner,

supra; Ellison v. Commissioner, supra; Doyel v. Commissioner,

supra.
 - 45 -

After considering all of the facts and circumstances, we

find that respondent did not abuse his discretion in denying

petitioner equitable relief from joint and several liability

under section 6015(f).

C. Conclusion

We have carefully considered all remaining arguments made by

the parties for results contrary to those expressed herein and,

to the extent not discussed above, find those arguments to be

irrelevant, moot, or without merit.

To reflect the foregoing,

Decision will be entered

for respondent.