T.C. Memo. 2005-36
UNITED STATES TAX COURT
YVONNE C. LOPEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2524-03. Filed February 28, 2005.
Yvonne C. Lopez, pro se.
Kenneth P. Dale, 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 1992, 1993,
1994, and 1995 taxable years. Respondent determined petitioner
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. Monetary amounts are
rounded to the nearest dollar.
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was not entitled to any relief from joint and several liability
under section 6015. Petitioner timely filed a petition seeking
review of respondent’s determination. The issue for decision is
whether respondent’s denial of relief under section 6015(f) was
an abuse of discretion.
FINDINGS OF FACT
Some of the facts have been stipulated. We incorporate the
stipulated facts into our findings by this reference. Petitioner
resided in Tacoma, Washington, when her petition in this case was
filed.
Background
During the years in issue, petitioner was married to Thomas
W. Cowdery (Mr. Cowdery). In May 1997, petitioner and Mr.
Cowdery divorced.
Petitioner is a high school graduate and has completed some
college course work. During the years in issue, petitioner
identified her occupation as either child care provider or
teacher. Mr. Cowdery changed jobs frequently while married to
petitioner, working in construction, drafting, and pyrotechnics.
During their marriage, petitioner and Mr. Cowdery maintained
a joint bank account, and they discussed their household bills.
Mr. Cowdery, however, generally handled their household finances.
During the years at issue, petitioner was not aware of any
problems with Mr. Cowdery’s handling of their finances, but in
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1999, she discovered he had made late bill payments that had
adversely affected her credit report.
Tax Returns
Petitioner and Mr. Cowdery filed joint Federal income tax
returns for 1992, 1993, 1994, and 1995. Their returns reflected
unpaid income tax liabilities (tax liabilities) of $806, $1,729,
$1,705, and $1,394 for 1992, 1993, 1994, and 1995, respectively.
The tax liabilities resulted from underwithholding of wages
attributable to both petitioner and Mr. Cowdery.
Mr. Cowdery had their joint returns prepared by a tax return
preparer. Petitioner gave Mr. Cowdery her Forms W-2, Wage and
Tax Statement, to take to the preparer. When petitioner and Mr.
Cowdery received the completed returns and saw the amounts due,
Mr. Cowdery assured petitioner that he had talked to the return
preparer about payment plans and that he would make monthly
payments on the liabilities. Petitioner thought Mr. Cowdery was
making the payments on the tax liabilities because of Internal
Revenue Service (IRS) payments she believed to be in envelopes
she saw in their mailbox. Petitioner did not know exactly what
was in the envelopes, however, and she never asked Mr. Cowdery
what was in them. Petitioner also never saw any checks written
to the IRS by Mr. Cowdery.
Sometime around October 1995, the IRS levied petitioner and
Mr. Cowdery’s bank account. Petitioner first became aware that
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Mr. Cowdery was not making payments to the IRS because of the
levy. Although petitioner was aware of the IRS action against
their account, she nevertheless filed her 1995 return jointly
with Mr. Cowdery.
Tax Liability Payments
On May 9, 1997, the County Clerk of Pierce County,
Washington, entered a Decree of Dissolution with respect to
petitioner and Mr. Cowdery’s marriage. The divorce decree stated
that Mr. Cowdery was responsible for providing spousal support to
petitioner and for paying the IRS liabilities. Mr. Cowdery,
however, consistently failed to make any such payments.
Petitioner received a court judgment against Mr. Cowdery for
his failure to make the support and tax liability payments. On
October 28, 1999, the County Clerk of Pierce County, Washington,
entered a Judgment for Past Due Spousal Maintenance and Payments
Made to IRS, which stated in pertinent part, the following:
3.5 JUDGMENT FOR PAST SPOUSAL MAINTENANCE
YVONNE LOPEZ shall have judgment against
THOMAS COWDERY in the amount of $3,575.00
for unpaid spousal maintenance for the period
from 6/16/98 through 7/15/99.
3.6 OTHER RECOVERY AMOUNTS
YVONNE LOPEZ shall have judgment against
THOMAS COWDERY for $1,246.32 for the payments
petitioner has made to the IRS.
Despite the judgment, however, petitioner received no money from
Mr. Cowdery. Because of Mr. Cowdery’s failure to pay the income
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tax liabilities, petitioner also made payments to the IRS of
$1,533,2 $375, $916, and $510 for 1992, 1993, 1994, and 1995,
respectively.3
Petitioner’s Innocent Spouse Claim
On November 4, 1999, petitioner filed Form 8857, Request for
Innocent Spouse Relief. Petitioner requested equitable relief
under section 6015(f) for taxable years 1992, 1993, 1994, and
1995. On July 29, 2000, petitioner prepared and signed a Form
433-A, Collection Information Statement for Individuals.
Petitioner also filed a completed Form 886-A, Innocent Spouse
Questionnaire.
On October 31, 2002, respondent issued a Notice of
Determination that denied petitioner’s request for relief for
each of the years in issue.4 On February 7, 2003, petitioner’s
2
After petitioner’s divorce, she filed her tax returns
separately from Mr. Cowdery. The IRS kept petitioner’s refunds
from the years following the divorce to offset the prior tax
liabilities. The $1,533 payment toward the 1992 liability thus
includes refund offsets of $75, $75, $91, and $270, from 1993,
1996, 1997, and 1998, respectively.
3
Respondent determined that if petitioner had filed
separately rather than jointly with Mr. Cowdery during the years
in issue, she would have owed $403, $902, $818, and $509 for each
of those years, respectively. When respondent provided
petitioner with his determination on Aug. 26, 2000, petitioner
promptly obtained money orders for the amounts she would have
owed and paid those amounts to the IRS.
4
The notice of determination erroneously stated that relief
was denied with respect to 1991, 1992, 1993, 1994, 1995, and
1996. Respondent concedes in his pretrial memorandum, however,
(continued...)
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petition contesting respondent’s determination was filed with
this Court. The petition did not conform with Rule 321(b).
Consequently, on February 11, 2003, we ordered petitioner to file
a proper “Amended Petition for Determination of Relief From Joint
and Several Liability on a Joint Return” (amended petition) by
March 11, 2003. Petitioner submitted an amended petition that we
filed on March 12, 2003.
OPINION
In general, spouses who file joint Federal income tax
returns are jointly and severally liable for the full amount of
the tax liability. Sec. 6013(d)(3); Butler v. Commissioner, 114
T.C. 276, 282 (2000). Pursuant to section 6015, however, a
spouse may seek relief from joint and several liability.5
One form of relief from joint and several liability is
equitable relief under section 6015(f). Section 6015(f)
provides:
SEC. 6015(f). Equitable Relief.–-Under procedures
prescribed by the Secretary, if--
(1) taking into account all the facts and
4
(...continued)
that the reference to 1991 and 1996 in the notice of
determination was erroneous and that the only years in issue are
1992 through 1995.
5
Sec. 6015 applies to tax liabilities arising after July 22,
1998, and to tax liabilities arising on or before July 22, 1998,
but remaining unpaid as of such date. Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3201(g), 112 Stat. 740.
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circumstances, it is inequitable to hold the
individual liable for any unpaid tax or any
deficiency (or any portion of either); and
(2) relief is not available to such
individual under subsection (b) or (c),
the Secretary may relieve such individual of such
liability.[6]
The Commissioner uses guidelines prescribed in Rev. Proc. 2000-
15, 2000-1 C.B. 447, to determine whether a taxpayer qualifies
for relief from joint and several liability under section
6015(f).7 We review the Commissioner’s determination using an
abuse of discretion standard. See Washington v. Commissioner,
120 T.C. 137, 146 (2003); Butler v. Commissioner, supra at 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 taxpayer
requesting section 6015(f) relief bears the burden of proof. See
Rule 142(a); Jonson v. Commissioner, supra at 113.
6
Because petitioner seeks relief from underpayments of tax
rather than understatements, relief under subsecs. (b) and (c) of
sec. 6015 is not available to her. Sec. 6015(b) and (c); see
also Washington v. Commissioner, 120 T.C. 137, 145-147 (2003).
7
On Aug. 11, 2003, the Commissioner issued Rev. Proc. 2003-
61, 2003-2 C.B. 296, which supersedes Rev. Proc. 2000-15, 2000-1
C.B. 447, effective for requests for relief filed on or after
Nov. 1, 2003, and for requests for relief pending on Nov. 1,
2003, for which no preliminary determination letter has been
issued as of that date.
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Before the Commissioner will consider a taxpayer’s request
for relief under section 6015(f), the taxpayer must satisfy seven
threshold conditions listed in Rev. Proc. 2000-15, sec. 4.01,
2000-1 C.B. at 448. Respondent concedes that petitioner
satisfies these conditions.
A. Revenue Procedure 2000-15, Section 4.02
Rev. Proc. 2000-15, sec. 4.02(1), 2000-1 C.B. at 448,
provides that equitable relief will ordinarily be granted as to
unpaid liabilities if the seven threshold conditions and each of
the following three elements are satisfied:
(a) At the time relief is requested, the
requesting spouse is no longer married to * * * the
nonrequesting spouse * * *;
(b) At the time the return was signed, the
requesting spouse had no knowledge or reason to know
that the tax would not be paid. The requesting spouse
must establish that it was reasonable for the
requesting spouse to believe that the nonrequesting
spouse would pay the reported liability. * * *; and
(c) The requesting spouse will suffer economic
hardship if relief is not granted. * * *
Relief under Rev. Proc. 2000-15, sec. 4.02 is only available,
however, to the extent that the unpaid liability is allocable to
the nonrequesting spouse. Rev. Proc. 2000-15, sec. 4.02(2)(b).
Respondent concedes that petitioner satisfied the first
element because she was divorced from Mr. Cowdery at the time she
requested relief. The parties, however, dispute whether
petitioner satisfied the second and third elements.
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1. Knowledge or Reason To Know
This element is satisfied if the requesting spouse did not
know or have reason to know when she signed the returns that the
taxes would not be paid. Accordingly, petitioner must establish
that it was reasonable for her to believe that Mr. Cowdery would
pay the reported liabilities.
During their marriage, petitioner and Mr. Cowdery discussed
their unpaid income tax liabilities as well as their other
household finances. Petitioner and Mr. Cowdery also maintained a
joint bank account. There is no evidence, and petitioner does
not allege, that Mr. Cowdery kept their financial documents, such
as bills or bank statements, from her. Petitioner contends,
however, that she never questioned Mr. Cowdery about the payments
he said he would make on the liabilities, despite being aware of
the annual underpayments of income tax shown on their joint
returns. Petitioner also does not appear to have requested any
records from the IRS regarding what payments had been made, to
have examined bank records for payments, or to have done anything
at all to verify whether Mr. Cowdery made any payments toward the
tax liabilities. What petitioner did do was continue to file
jointly with Mr. Cowdery after she knew he was not making
payments to the IRS.
While we are sympathetic to petitioner’s situation with her
former husband, we have consistently applied the principle that
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the provisions providing relief from joint and several liability
are “‘designed to protect the innocent, not the intentionally
ignorant’”. Morello v. Commissioner, T.C. Memo. 2004-181
(quoting Dickey v. Commissioner, T.C. Memo. 1985-478).
Petitioner has not established that she did not have reason to
know the tax liabilities shown on her returns for the years at
issue would not be paid when she signed them and that it was
reasonable for her to believe Mr. Cowdery would pay those
liabilities. Consequently, petitioner does not satisfy the
knowledge or reason to know element of Rev. Proc. 2000-15, sec.
4.02 and does not qualify for equitable relief under that section
of the revenue procedure. For the sake of completeness, however,
we also address the economic hardship factor.
2. Economic Hardship
Rev. Proc. 2000-15, sec. 4.02 requires that the
determination of whether a requesting spouse will suffer economic
hardship be based on rules similar to those in section 301.6343-
1(b)(4), Proced. & Admin. Regs. Rev. Proc. 2000-15, sec.
4.02(1)(c). Economic hardship is present if satisfaction of the
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tax liability in whole or in part will cause the taxpayer to be
unable to pay her reasonable basic living expenses.8 Sec.
301.6343-1(b)(4), Proced. & Admin. Regs.
In 2000, petitioner filed a Form 433-A with respondent.
Petitioner reported on the Form 433-A that she was employed by
the Puget Sound Blood Center as a technician, with an annual
salary of approximately $25,600.9 Petitioner reported her
monthly income as $2,133 and her monthly expenses as $2,078.
Petitioner’s stated monthly expenses included housing and utility
expenses of $1,398, transportation expenses of $425, and health
care expenses of $60. Petitioner also included $195 of monthly
credit card payments in her expenses but testified at trial she
8
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs., lists
factors that will be considered in determining a reasonable
amount for basic living expenses. These factors include the
taxpayer’s age, employment status and history, ability to earn,
number of dependents, extraordinary circumstances, and any other
factor that the taxpayer claims bears on economic hardship and
brings to the attention of the director.
9
Petitioner did not include a Form W-2, Wage and Tax
Statement, with her Form 433-A from the Blood Center. She
provided only a pay stub that showed her net pay for the pay
period ending July 22, 2000 (the length of this pay period is not
provided), and some year-to-date information regarding her
salary.
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no longer has any credit cards. Petitioner’s reported assets
consisted of a 1999 model Kia Sophia,10 a “402B” account
established through her employer,11 and her home.
Petitioner purchased her home on February 1, 1999. As of
February 16, 2004, the value of the home was $111,500.
Petitioner purchased the home from her parents for $98,000. She
obtained a $78,000 mortgage and made a $20,000 downpayment, the
funds for which were given to her by her parents. She
subsequently refinanced her mortgage, and its balance as of
February 2004 was $101,000. Petitioner contends she did not use
the gift from her parents or the money she received from the
refinancing to pay the tax liabilities because “my ex-husband is
supposed to pay it. I’m not.”
Petitioner testified that her situation has changed since
2000 in that she no longer has credit card debt, has refinanced
her home, and is now caring for a blind uncle, but that her
situation is otherwise the same as when she filed the Form 433-A.
Petitioner contends it would be a hardship for her to pay the tax
liabilities because of her mortgage payments and the expense of
caring for her uncle. She did not introduce into evidence any
financial records regarding her current salary, basic living
10
Petitioner reported that her Kia Sophia was worth $5,500
and that she had a $3,500 liability with respect to the car.
11
The record is silent as to the value of the 402B account.
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expenses, the existence and amount of other debts, or the nature
and amount of the expenses she pays to care for her uncle.
Consequently, we conclude that petitioner has failed to prove
that she would be unable to pay her basic living expenses and
would suffer economic hardship if relief under section 6015(f)
were denied.
B. Revenue Procedure 2000-15, Section 4.03
Where the requesting spouse fails to qualify for relief
under Rev. Proc. 2000-15, sec. 4.02, the Commissioner may
nonetheless grant relief under Rev. Proc. 2000-15, sec. 4.03,
2000-1 C.B. at 448. Rev. Proc. 2000-15, sec. 4.03 provides that,
where the seven threshold conditions have been satisfied and the
requesting spouse does not qualify for relief under Rev. Proc.
2000-15, sec. 4.02, 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 448-449, contains a
list of positive and negative factors that the Commissioner will
take into account in determining, on the facts and circumstances,
whether to grant full or partial equitable relief under 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
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factors is not intended to be exhaustive. See Washington v.
Commissioner, 120 T.C. at 148; Jonson v. Commissioner, 118 T.C.
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. * * *
(e) Nonrequesting spouse’s legal obligation. The
nonrequesting spouse has a legal obligation pursuant to
a divorce decree or agreement to pay the outstanding
liability. This will not be a factor weighing in favor
of relief if the requesting spouse knew or had reason
to know, at the time the divorce decree or agreement
was entered into, that the nonrequesting spouse would
not pay the liability.
(f) Attributable to nonrequesting spouse. The
liability for which relief is sought is solely
attributable to the nonrequesting spouse.
Rev. Proc. 2000-15, sec. 4.03(2) lists the following six negative
factors that the Commissioner weighs against granting equitable
relief:
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(a) Attributable to the requesting spouse. The
unpaid liability or item giving rise to the deficiency
is attributable to the requesting spouse.
(b) Knowledge, or reason to know. A requesting
spouse knew or had reason to know * * * that the
reported liability would be unpaid at the time the
return was signed. This is an extremely strong factor
weighing against relief. Nonetheless, when the factors
in favor of equitable relief are unusually strong, it
may be appropriate to grant relief under §6015(f) in
limited situations where a requesting spouse knew or
had reason to know that the liability would not be
paid, * * *
(c) Significant benefit. The requesting spouse
has significantly benefitted (beyond normal support)
from the unpaid liability * * *. 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
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
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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. In
accordance with the above, we shall consider each of the positive
and negative factors enumerated in Rev. Proc. 2000-15, sec. 4.03.
1. Positive Factors
a. Marital Status
Petitioner and Mr. Cowdery divorced in 1997. Respondent
concedes this factor weighs in favor of granting relief.
b. Economic Hardship
For the reasons stated in our analysis of this factor under
Rev. Proc. 2000-15, sec. 4.02, we conclude that petitioner has
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failed to establish she will suffer economic hardship if she is
not granted equitable relief. This positive factor does not
apply.
c. Abuse by Nonrequesting Spouse
Petitioner does not allege that Mr. Cowdery abused her.
This positive factor does not apply. Ewing v. Commissioner,
supra at 46; Washington v. Commissioner, supra at 149.
d. No Knowledge or Reason To Know
For the reasons stated in our analysis of this factor under
Rev. Proc. 2000-15, sec. 4.02, we conclude petitioner has failed
to establish that she did not have reason to know when the
returns were filed that the tax liabilities shown as due on the
1992, 1993, 1994, and 1995 returns would not be paid. This
positive factor does not apply.
e. Nonrequesting Spouse’s Legal Obligation
Under petitioner and Mr. Cowdery’s 1997 divorce decree, Mr.
Cowdery bears the legal obligation for paying the tax liabilities
for each of the years in issue. Respondent concedes this factor
weighs in favor of granting relief.
f. Liabilities Solely Attributable to Nonrequesting
Spouse
The unpaid tax liabilities resulted from underwithholding of
both petitioner’s and Mr. Cowdery’s wages, and, therefore, the
liabilities are not solely attributable to Mr. Cowdery.
Consequently, we conclude this positive factor does not apply.
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2. Negative Factors
a. Attributable to the Requesting Spouse
Because the unpaid liabilities are attributable to both
petitioner and Mr. Cowdery, this factor weighs against granting
petitioner equitable relief.
b. Knowledge or Reason To Know
As discussed, supra, we conclude that petitioner had reason
to know when she signed the returns that the tax liabilities
would not be paid. This factor weighs heavily against granting
petitioner equitable relief. Rev. Proc. 2000-15, sec.
4.03(2)(b).
c. Significant Benefit
Respondent does not contend that petitioner significantly
benefited from the unpaid liabilities, and the record does not
reflect otherwise. This factor weighs in favor of granting
petitioner equitable relief.
d. Lack of Economic Hardship
As discussed, supra, petitioner has failed to establish that
she will suffer economic hardship if relief is not granted.
This negative factor applies and weighs against granting relief.
e. Noncompliance With Federal Income Tax Laws in
Subsequent Years
Respondent does not contend that this factor applies, and he
did not otherwise argue on brief or at trial that petitioner did
not make a good-faith effort to comply with her Federal income
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tax obligations in the years subsequent to those in issue here.
Consequently, we conclude 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 Mr. Cowdery, rather than petitioner, bears the
legal obligation to pay the liabilities at issue in this case.
Consequently, this negative factor does not apply.
3. Conclusion
Three factors weigh in favor of granting petitioner relief.
Although three factors also weigh against granting petitioner
relief, the knowledge or reason to know factor weighs heavily
against relief. All other factors are neutral. After
considering all 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).
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.