Pacheco v. Commissioner of Internal Revenue

PURSUANT TO INTERNAL REVENUE CODE
SECTION 7463(b),THIS OPINION MAY NOT
BE TREATED AS PRECEDENT FOR ANY
OTHER CASE.

T.C. Summary Opinion 2007-125

UNITED STATES TAX COURT

MAGDALENA PACHECO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7183-05S. Filed July 23, 2007.

Ned Leiba, for petitioner.
Daniel W. Layton, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed. Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
and this opinion shall not be treated as precedent for any other
case. Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) as in effect for the years at
– 2 –
1The Internal Revenue Service Restructuring and Reform Act
of 1998 (RRA 1998), Pub. L. 105-206, sec. 3201(a), 112 Stat. 734,
repealed sec. 6013(e) and replaced it with sec. 6015. Sec. 6015
applies to any tax arising after July 22, 1998, and to any
liability for tax arising on or before July 22, 1998, and unpaid
as of that date. RRA 1998 sec. 3201(g), 112 Stat. 740. Sec.
6015, therefore, applies in this case.

2Petitioner concedes that she is not entitled to relief from
joint and several liability under sec. 6015(f) for 1995, 1996,
and 1997.

3The Consolidated Appropriations Act, 2001, Pub. L. 106-544,
app. G, sec. 313(a)(2)(A), 114 Stat. 2763A-640 (2000), enacted on
Dec. 21, 2000, redesignated subsec. (g) of Code sec. 6015 as
subsec. (h) and inserted the language of Code sec. 6015(e)(3)(B)
in new subsec. (g)(2). The effective date of this change is the
date of enactment. Id. sec. 313(f), 114 Stat. 2763A-643.
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.

Petitioner seeks review of respondent’s notice of
determination dated January 12, 2005, denying her relief from
joint and several liability under section 6015(c) and (f) for
1995, 1996, and 1997.1 After a concession,2 the issues for
decision are: (1) Whether the doctrine of res judicata under
section 6015(g)(2)3 bars petitioner from raising relief under
section 6015 for 1995 and 1996, and if not, whether petitioner is
entitled to relief from joint and several liability under section
6015(c) for 1995 and 1996; and (2) whether petitioner is entitled
to relief from joint and several liability under section 6015(c)
for 1997.
– 3 –

Background

The stipulated facts and the exhibits received into evidence
are incorporated herein by reference. At the time the petition
was filed, petitioner resided in Stockton, California.
Juan Pacheco (Mr. Pacheco), petitioner’s spouse, was born in
Mexico. He died in California on May 22, 2000. Mr. Pacheco
completed the third grade in Mexico, and he did not speak, read
or write English.

Petitioner was also born in Mexico. She graduated from high
school in Mexico, and she came to the United States in 1986.
Mr. Pacheco obtained a California farm labor contractor’s
license and started a farm labor contracting business in 1980.
In 1990, Mr. Pacheco lost his license, and in that same year,
petitioner started to work as a farm labor contractor. In 1991,
petitioner obtained a California farm labor contractor’s license,
and the name of Mr. Pacheco’s former business was changed to
Magdalena Pacheco Farm Labor Contractor (Contractor).
During 1995, 1996, and 1997, petitioner and Mr. Pacheco
operated Contractor in Stockton, California. Operators of farms
or vineyards would contact Contractor when they needed temporary
farm labor. Contractor would provide the requested workers, and
the farm or vineyard would pay Contractor which would in turn pay
the workers.
– 4 –

During 1995, petitioner also worked as a food packaging
machine operator at Safeway Markets.

Taxable Years 1995 and 1996

Examination of the Returns

Petitioner and Mr. Pacheco filed jointly for 1995 and 1996
Forms 1040, U.S. Individual Income Tax Return, prepared by a paid
preparer. In 1997, the returns were selected for examination,
and the case was assigned to Revenue Agent Patrick Lunny (RA
Lunny).

During the examination process, RA Lunny interacted only
with petitioner or with one of her representatives. It is not
disputed that RA Lunny never met with or spoke with Mr. Pacheco
during the audit because Mr. Pacheco did not speak English.
RA Lunny determined that petitioner and Mr. Pacheco had
unreported income from Contractor on the basis of the third party
information returns that the farmers filed with the Internal
Revenue Service (IRS). RA Lunny also determined that certain
business expense deductions for Contractor were not substantiated
on the Schedules C, Profit or Loss From Business, for 1995 and
1996.

On October 23, 1998, respondent issued to petitioner and Mr.
Pacheco a statutory notice of deficiency, determining for 1995
and 1996, respectively, deficiencies in Federal income taxes of
– 5 –

$48,826 and $54,467 and section 6662(a) accuracy-related
penalties of $9,765 and $10,893.

Tax Court Proceeding

On January 25, 1999, petitioner and Mr. Pacheco petitioned
the Court, docket No. 1474-99, seeking a redetermination of the
deficiencies and the section 6662(a) accuracy-related penalties
for 1995 and 1996 (prior proceeding).

The Court entered a stipulated decision in the prior
proceeding on June 29, 2000, with respect to the deficiencies and
penalties for 1995 and 1996, and no appeal was filed. The
parties have stipulated that relief under section 6015 was not
raised as an issue at any time during the prior proceeding.

Taxable Year 1997

Petitioner and Mr. Pacheco filed jointly for 1997 a Form
1040 prepared by a paid preparer. RA Lunny subsequently expanded
the scope of his audit to include 1997. On March 16, 2000,
petitioner and Mr. Pacheco consented to the assessment of an
additional tax liability of $9,503 plus interest for 1997. No
penalties were assessed.

Collection Action

On June 6, 2002, petitioner filed a petition for levy action
with the Court, docket No. 9654-02L, in response to a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 dated May 10, 2002, for 1995, 1996, and 1997.
– 6 –

The Court entered a decision on May 16, 2003, in docket No.
9654-02L, pursuant to a stipulation between petitioner and
respondent, relating to the collection of petitioner’s income tax
liabilities for 1995, 1996, 1997.

Request for Innocent Spouse Relief

Respondent received from petitioner on June 3, 2002, a Form
8857, Request for Innocent Spouse Relief, in which petitioner
requested relief from joint and several liability under section
6015(c) and (f) for 1995, 1996, and 1997.

A Notice of Determination Concerning Your Request for Relief
from Joint and Several Liability under Section 6015 (notice of
determination) denying petitioner’s request was issued to
petitioner on January 12, 2005.

Present Proceeding

On April 18, 2005, petitioner filed with the Court a
petition seeking a review of the notice of determination denying
her request for relief from joint and several liability under
section 6015 for 1995, 1996, and 1997.

Respondent filed a motion to file answer out of time to
allege the application of res judicata under section 6015(g)(2)
for 1995 and 1996. Petitioner filed an objection, and respondent
filed a response to petitioners’s objection. A hearing was held,
and the Court granted respondent’s motion to file an answer out
of time to allege the application of section 6015(g)(2).
– 7 –

Respondent subsequently amended his answer, without objection
from petitioner, to allege actual knowledge of the items giving
rise to the deficiencies for the years in issue.

Discussion

Generally, married taxpayers may elect to file a joint
Federal income tax return. Sec. 6013(a). After making the
election, each spouse is jointly and severally liable for the
entire tax due. Sec. 6013(d)(3). Section 6015 provides,
however, that a spouse may seek relief from joint and several
liability on a joint return under certain circumstances.
A spouse (requesting spouse) may seek relief from joint and
several liability under section 6015(b), or if eligible, may
allocate liability according to section 6015(c). If relief is
not available under section 6015(b) or (c), the requesting spouse
may seek equitable relief under section 6015(f). Sec.
6015(f)(2); Butler v. Commissioner, 114 T.C. 276, 287-292 (2000).
Petitioner claims that she is entitled to relief from joint
and several liability under section 6015(c) for 1995, 1996, and
1997. Respondent argues that petitioner’s claim for relief under
section 6015(c) with respect to 1995 and 1996 is barred by the
doctrine of res judicata by operation of section 6015(g)(2).
Respondent contends that section 6015(g)(2) applies because: (1)
The Court entered a final decision for 1995 and 1996 in the prior
proceeding; (2) petitioner participated meaningfully in the prior
– 8 –

proceeding; and (3) petitioner could have raised relief under
section 6015 in the prior proceeding.

Since the stipulated decision entered in the prior
proceeding did not include 1997, section 6015(g)(2) does not bar
petitioner’s claim for relief under section 6015(c) from joint
and several liability for 1997.

Application of Section 6015(g)(2) to 1995 and 1996
Under section 6015, the requesting spouse bears the burden
of proof except where that section otherwise provides. See Rule
142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101
Fed. Appx. 34 (6th Cir. 2004); Jonson v. Commissioner, 118 T.C.
106, 113 (2002), affd. 353 F.3d 1181 (10th Cir. 2003); see also
sec. 6015(c)(3)(A)(ii), (C), (d)(3)(C). Section 6015 does not
provide that the Commissioner bears the burden of proof under
section 6015(g)(2). Monsour v. Commissioner, T.C. Memo. 2004-
190. The requesting spouse therefore bears the burden of proof
under section 6015(g)(2). Huynh v. Commissioner, T.C. Memo.
2006-180.

The doctrine of res judicata may preclude a requesting
spouse from obtaining relief under section 6015. See sec.
6015(g)(2). Generally, where a court of competent jurisdiction
enters a final judgment on the merits of a cause of action, the
parties to the action are bound by every matter that was or could
have been offered and received to sustain or defeat the claim.
– 9 –

Commissioner v. Sunnen, 333 U.S. 591, 597 (1948); Thurner v.
Commissioner, 121 T.C. 43, 50 (2003). Because Federal income
taxes are determined on an annual basis, each year is a separate
cause of action, and res judicata is applied to bar subsequent
proceedings involving the same tax year. Commissioner v. Sunnen,
supra at 598; Calcutt v. Commissioner, 91 T.C. 14, 21 (1988).
Tax Court decisions reached by agreement constitute a final
judgment on the merits for purposes of res judicata. See United
States v. Shanbaum, 10 F.3d 305, 313 (5th Cir. 1994); Trent v.
Commissioner, T.C. Memo. 2002-285. The Court entered a
stipulated decision in the prior proceeding with respect to the
tax liabilities for 1995 and 1996. The decision is final because
petitioner and Mr. Pacheco did not appeal the stipulated decision
within the requisite time under the statute. See secs.
7481(a)(1), 7483.

Section 6015(g)(2), however, modifies the common law
doctrine of res judicata with regard to claims under section
6015. Section 6015(g)(2) provides in relevant part:
SEC. 6015(g). Credits and Refunds.–
* * * * * * *
(2) Res judicata.– In the case of any
election under subsection (b) or (c), if a
decision of a court in any prior proceeding
for the same taxable year has become final,
such decision shall be conclusive except with
respect to the qualification of the
individual for relief which was not an issue
– 10 –

in such proceeding. The exception contained
in the preceding sentence shall not apply if
the court determines that the individual
participated meaningfully in such prior
proceeding.

Therefore, a requesting spouse cannot make an election under
section 6015(b) or (c) for any taxable year that is the subject
of a final court decision unless the requesting spouse’s
qualification for relief under section 6015(b) or (c) was not an
issue in the prior court proceeding and the requesting spouse did
not participate meaningfully in the prior proceeding. Vetrano v.
Commissioner, 116 T.C. 272, 278 (2001).

Section 1.6015-1(e), Income Tax Regs., imposes an additional
requirement for the application of section 6015(g)(2). The
requesting spouse must show that she could not have raised relief
under section 6015 in the prior proceeding. Id. Section 1.6015-
1(e), Income Tax Regs., provides:
(e) Res judicata and collateral estoppel.–A requesting
spouse is barred from relief from joint and several
liability under section 6015 by res judicata for any
tax year for which a court of competent jurisdiction
has rendered a final decision on the requesting
spouse’s tax liability if relief under section 6015 was
at issue in the prior proceeding, or if the requesting
spouse meaningfully participated in that proceeding and
could have raised relief under section 6015. * * *

Taxable years 1995 and 1996 are the subject of a final court
decision, and respondent agrees that petitioner’s qualification
for relief was not raised as an issue in the prior proceeding.
The parties dispute whether petitioner could have raised relief
– 11 –
4For purposes of determining eligibility for relief under
sec. 6015(c), a widow or widower is treated as a taxpayer who is
no longer married. See Jonson v. Commissioner, 118 T.C. 106, 124
(2000), affd. 353 F.3d 1181 (10th Cir. 2003); Rosenthal v.
Commissioner, T.C. Memo. 2004-89.

under section 6015 in the prior proceeding and whether she
participated meaningfully in the prior proceeding.
Whether Petitioner Could Have Raised Relief Under Section
6015 in the Prior Proceeding

Section 6015 encompasses three types of relief: (1)
Subsection (b) provides full or apportioned relief from joint and
several liability; (2) subsection (c) provides proportionate tax
relief to divorced or separated taxpayers;4 and (3) subsection (f)
provides equitable relief from joint and several liability in
certain circumstances if neither subsection (b) nor (c) is
applicable. Noons v. Commissioner, T.C. Memo. 2004-243.
Petitioner argues that she could not have raised relief
under section 6015 in the prior proceeding because relief under
subsection (c) was not available to her until the death of Mr.
Pacheco on May 22, 2000. Respondent counters that petitioner
could have raised relief under subsections (b) and (f).
Respondent argues that the language under section 1.6015-1(e),
Income Tax Regs., “could have raised relief under section 6015”,
means that if petitioner could have raised relief under any of
subsections (b), (c), and (f) at any point in the prior
proceeding, the requirement is met.
– 12 –

In the prior proceeding, petitioner and Mr. Pacheco were
represented by Arthur Leiba (Mr. Leiba). Mr. Leiba submitted a
statement in lieu of testimony at trial, admitting that before
the death of Mr. Pacheco, he was “generally aware of innocent
spouse relief, but not specific provisions. To the best of my
knowledge and recollection, if * * * [petitioner] benefitted from
the tax returns, she couldn’t take advantage of it.”

Before the death of Mr. Pacheco, relief under subsection (c)
was not yet available to petitioner. Nevertheless, petitioner
could have raised relief under subsections (b) and (f), but her
counsel, in his judgment, decided not to do so.
Upon the death of Mr. Pacheco on May 22, 2000, however,
petitioner became eligible to elect relief under subsection (c).
At the time, the prior proceeding was still pending.
The proper time to elect relief under section 6015 is at any
point after a deficiency has been asserted by the IRS. See
Vetrano v. Commissioner, supra at 279. “‘This is the least
disruptive for both the taxpayer and the IRS since it allows both
to focus on the innocent spouse issue while also focusing on the
items that might cause a deficiency.’” Id. (quoting H. Conf.
Rept. 106-1033, at 1023 (2000)). It also permits every issue,
including the innocent spouse issue, to be resolved in a single
administrative and judicial process. Id.
– 13 –

Moreover, in Vetrano, this Court held that once the taxpayer
became eligible for section 6015 relief under a particular
subsection, she had to file an election. Id. at 282. If a
taxpayer failed to make an election in the first proceeding and
attempted to make an election in a subsequent proceeding after
the first proceeding became final, she would be barred by res
judicata from making an election in the subsequent proceeding.
Id. at 283-284.

Petitioner argues that she could not have raised relief
under subsection (c) in the prior proceeding because: (1) Her
counsel at the time did not inform her that such relief was
available, and (2) the 1995 and 1996 taxes were “definitively
settled” before Mr. Pacheco’s death.

Petitioner claims that she was not informed by her counsel
that she could have sought relief under subsection (c) and that
she would not have signed the stipulated decision had she known.
Mr. Leiba acknowledged in his statement that “after * * * [Mr.
Pacheco] died, I don’t remember considering * * * [innocent
spouse relief]. I didn’t reevaluate the situation after he died
because they both agreed to the liability and there was no
dispute.”

The quality of advocacy and the actual knowledge of the
litigants are not special circumstances in determining whether a
prior judgment is a bar in subsequent litigation. Trent v.
– 14 –

Commissioner, T.C. Memo. 2002-285. Therefore, Mr. Leiba’s
failure to inform petitioner that she could seek relief under
subsection (c) is insufficient to overcome the bar of res
judicata.

Petitioner’s counsel contends that a month before Mr.
Pacheco’s death, petitioner and Mr. Pacheco had “definitively
settled” the taxes for 1995 and 1996 with RA Lunny. On April 25,
2000, RA Lunny completed the tax examination report, and the file
was sent to the Appeals Office. Petitioner’s counsel argues that
the prior proceeding effectively concluded at the point when the
file left RA Lunny’s office. Therefore, petitioner did not have
an opportunity to raise relief under subsection (c) in the prior
proceeding.

RA Lunny testified that his role was to make
recommendations, and it was up to the Appeals Office to “make the
final call” on whether to accept them. The Court, after
reviewing the evidence presented by petitioner and respondent,
agrees with respondent that the prior proceeding was not final at
the time the file left RA Lunny’s office.

Petitioner could have raised relief under subsection (c) in
the prior proceeding at any time between Mr. Pacheco’s death on
May 22, 2000, and the entry of the decision document on June 29,
2000. Even after the decision has been entered, under Rule 162,
petitioner could have moved to vacate the decision within 30 days
– 15 –

after the decision had been entered. Petitioner, however, did
not raise relief under subsection (c) during the prior
proceeding.

Whether Petitioner Participated Meaningfully in the Prior
Proceeding

Petitioner bears the burden of proving by a preponderance of
the evidence that she did not participate meaningfully in the
prior proceeding. See Monsour v. Commissioner, T.C. Memo. 2004-
190. At trial, petitioner’s counsel conceded that petitioner
participated meaningfully in the prior proceeding relating to
1995 and 1996 up to April of 2000, or about a month before the
death of Mr. Pacheco. Petitioner’s counsel argued that after
April of 2000, petitioner did not participate “meaningfully”
because the remaining actions that were required to conclude the
proceeding for 1995 and 1996 were ministerial.

Court cases have not clearly defined “meaningful
participation” in all respects. Huynh v. Commissioner, T.C.
Memo. 2006-180. Nevertheless, the Court has held that signing
Court documents and participating in settlement negotiations are
indicators of meaningful participation. Id.; Monsour v.
Commissioner, supra. It is not disputed that petitioner
communicated with respondent on numerous occasions in the prior
proceeding, in person and by phone, to discuss settlement and to
voluntarily sign court documents.
– 16 –

The Court, on the evidence offered, finds that petitioner
participated meaningfully throughout the prior proceeding.

Exception From Res Judicata

Absent an exception from res judicata, petitioner is barred
under section 6015(g)(2) from seeking relief under subsection (c)
in this proceeding. Petitioner’s counsel cites Smaczniak v.
Commissioner, 998 F.2d 238 (5th Cir. 1993), revg. T.C. Memo.
1991-87, arguing that the Court of Appeals for the Fifth Circuit
relied on “common sense” to craft an exception to ameliorate the
strict application of res judicata. This case is not bound by
the law of the Fifth Circuit, and in any event, Smaczniak is
distinguishable.

In Smaczniak, the Commissioner voluntarily redetermined the
taxpayer’s liability after a final decision was entered. Id. at
242-243. The Court of Appeals held that this was akin to a
“subsequent modification of the significant facts” so as to
render inapplicable the effect of res judicata for the same
taxable years in a subsequent proceeding. Id. at 243. In the
prior proceeding, however, respondent did not voluntarily
redetermine petitioner’s liabilities after the entry of the final
decision. Therefore, Smaczniak is not applicable.
The Court has considered the remaining arguments raised in
petitioner’s trial memorandum and supplement trial memorandum and
finds that they are unconvincing. The Court has no authority to
– 17 –
5Under sec. 6015(c)(3)(B), an election for relief from joint
and several liability under sec. 6015(c) is to be made at any
time after a deficiency is asserted but not later than 2 years
after the date on which the Commissioner has begun collection
action. Respondent has not raised any issue as to the timeliness
of petitioner’s election under sec. 6015(c).

override section 6015(g)(2) or vary its terms. See Vetrano v.
Commissioner, 116 T.C. at 280.

Accordingly, the Court concludes that section 6015(g)(2)
precludes petitioner from seeking relief from joint and several
liability under section 6015(c) for 1995 and 1996.

Application of Section 6015(c) Relief for 1997
Upon the satisfaction of certain conditions, section 6015(c)
relieves the requesting spouse of liability for the items making
up the deficiency that would have been allocated solely to the
nonrequesting spouse if the spouses had filed separate tax
returns for the taxable year. Sec. 6015(d)(1), (3)(A); Cheshire
v. Commissioner, 282 F.3d 326, 332 (5th Cir. 2002), affg. 115
T.C. 183 (2000); Mora v. Commissioner, 117 T.C. 279, 290 (2001).
Section 6015(c) applies only to taxpayers who are no longer
married, are legally separated, or have been living apart for
over a 12-month period. Sec. 6015(c)(3)(A)(i). A widow or
widower is treated as a taxpayer who is no longer married. See
Jonson v. Commissioner, 118 T.C. at 124.

Respondent received from petitioner a Form 8857, Request For
Innocent Spouse Relief, for 1997 on June 3, 2002.5 The parties
– 18 –

stipulated that petitioner is entitled to seek relief under
section 6015(c) for 1997.

Relief under section 6015(c) is not available if the
Commissioner demonstrates that the requesting spouse had actual
knowledge, at the time the return was signed, of any item giving
rise to a deficiency (or portion thereof) that is not allocable
to such individual. Sec. 6015(c)(3)(C); Hopkins v. Commissioner,
121 T.C. 73, 86 (2003); Culver v. Commissioner, 116 T.C. 189, 194
(2001). Petitioner has the burden of proving which items would
not have been allocated to her if the spouses had filed separate
returns. See Mora v. Commissioner, supra at 290; Levy v.
Commissioner, T.C. Memo. 2005-92.

While the taxpayer generally has the burden of proof, in
order to preclude relief under section 6015(c) the Commissioner
must carry the burden of demonstrating by a preponderance of the
evidence that the requesting spouse had, at the time she signed
the return, actual knowledge of “any item giving rise to a
deficiency”. Rule 142(a)(1); Culver v. Commissioner, supra at
196; Charlton v. Commissioner, 114 T.C. 333, 341-342 (2000); sec.
1.6015-3(c)(2)(i), Income Tax Regs. “Item” means “an item of
income, deduction, or credit”. Cheshire v. Commissioner, supra
at 337.

The items giving rise to the 1997 deficiency are: (1)
Unreported income from farmers who paid Contractor for the
– 19 –

workers provided, and (2) disallowed business expense deductions
for failure to provide substantiation.

The Commissioner must show that the requesting spouse had an
“actual and clear awareness” of omitted income. Cheshire v.
Commissioner, supra at 337 n.26; Cook v. Commissioner, T.C. Memo.
2005-22; Rowe v. Commissioner, T.C. Memo. 2001-325. Knowledge of
the item includes knowledge of the receipt of the income. Sec.
1.6015-3(c)(2)(i)(A), Income Tax Regs.

At trial, petitioner admitted that she cashed or deposited
the checks from the farmers representing the omitted income on
her return. Therefore, petitioner had actual knowledge of the
omitted income.

In the case of an erroneous deduction, knowledge of the item
means knowledge of the facts that made the item not allowable as
a deduction. Sec. 1.6015-3(c)(2)(i)(B), Income Tax Regs.; see
Rowe v. Commissioner, supra (citing King v. Commissioner, 116
T.C. 198, 204 (2001)). At trial, petitioner testified that she
handled the receipts, made deposits, wrote checks, reviewed bank
statements, and kept track of income and expenses for Contractor.
The business account was not held jointly but was held solely in
petitioner’s name, doing business as Contractor. Petitioner was
also responsible for dealing with the bookkeeping company that
kept track of Contractor’s payroll. Mr. Pacheco was not involved
– 20 –

in managing the finances of Contractor because his education was
limited.

Petitioner’s counsel agrees that petitioner was involved in
the business. He argues, however, that the individual
adjustments were small and that petitioner could not have
actually known of every single transaction that had occurred at
the time she signed the return. Under counsel’s reasoning,
petitioner would be required to have a tax professional’s level
of expertise for the Court to find actual knowledge under section
6015(c)(3)(C). In Cheshire v. Commissioner, 115 T.C. at 194, the
Court rejected this knowledge standard.

Petitioner testified that she reviewed all canceled checks
for Contractor, separated the checks into business related or
personal, and made notes of what each check was for. Petitioner
agreed that she knew whether a given expense was business or
personal. Therefore, she had knowledge of the facts as to
whether an item was allowable as a deduction. See sec. 1.6015-
3(c)(2)(i)(B), Income Tax Regs. These admissions are sufficient
for the Court to find that petitioner had actual knowledge of the
pertinent items at the time that she signed the 1997 return.
In addition, respondent asserts that petitioner has held
herself out as the owner of Contractor. In support, respondent
produced copies of: (1) Form 943, Employer’s Annual Tax Return
for Agricultural Employees for 1995 and 1996, (2) Form 940-EZ,
– 21 –

Employer’s Annual Federal Unemployment (FUTA) Tax Return for 1995
and 1996, and (3) State of California Employment Development
Department, Form DE7, Annual Reconciliation Return, for 1995 and
1996. Petitioner admitted that she had signed the foregoing
documents and had represented herself as the owner of Contractor.
Because she was the owner of Contractor, the entire 1997
deficiency is allocable to her. See sec. 1.6015-3(d), Income Tax
Regs.

The Court has reviewed all the evidence presented and finds
that petitioner had actual knowledge of the items giving rise to
the deficiency for 1997. The Court holds that respondent did not
err in denying petitioner relief from joint and several liability
under section 6015(c) for 1997 in his notice of determination
dated January 12, 2005.

To reflect the foregoing,
Decision will be entered
for respondent.