Many important tax changes go into effect in 2010 apart from the numerous indexing changes that were covered at. These non-indexing changes result from various laws that were enacted and regs and other guidance issued over the past few years. This Practice Alert reviews the non-indexing tax law changes for 2010 for businesses.
Deduction for domestic production activities increases. For tax years beginning after 2009, the Code Sec. 199 deduction for domestic production activities increases. Taxpayers will be able to claim a deduction generally equal to 9% (up from 6% for tax years beginning in 2007-2009) of the lesser of: (1) the taxpayer's “qualified production activities income” (QPAI) for the tax year or (2) taxable income (modified adjusted gross income, for individual taxpayers) without regard to this deduction, for the tax year. ( Code Sec. 199(a) ; Reg. § 1.199-1(a) ) The deduction is further limited to 50% of the W-2 wages of the employer for the tax year.
Reduced domestic production activities deduction for oil-related activities. For tax years beginning after 2009, the otherwise allowable Code Sec. 199 deduction of a taxpayer with oil-related QPAI is reduced by 3% of the least of (1) oil-related QPAI for the tax year; (2) QPAI for the tax year; or (3) taxable income (or for individuals, AGI), determined without regard to the domestic production activities deduction. ( Code Sec. 199(d)(9)(A) )
Smaller employers may establish combined plans. For plan years beginning after 2009, employers with 500 or fewer employees may establish a combined defined benefit-401(k) plan (a “DB(k) plan”). In general, the defined benefit rules apply to the defined benefit portion of the plan and the defined contribution rules apply to the defined contribution portion of the plan. The 401(k) component must have automatic enrollment and must meet minimum matching contribution requirements. ( Code Sec. 414(x)(2) )
Nonspouse beneficiary rollover option mandatory for qualified plans. Under Sec. 108(f) of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA, P.L. 110-458 ), qualified retirement plans must offer nonspouse beneficiaries the opportunity to roll over an inherited plan account balance to an IRA set up to receive the rollover on the nonspouse beneficiary's behalf, effective for plan years beginning after Dec. 31, 2009. For earlier plan years, could, but were not required to, offer nonspouse beneficiaries this rollover option.
New limitation on deduction of farm losses. For tax years beginning after 2009, the farming loss of a taxpayer, other than a C corporation, is limited for any tax year in which any applicable subsidies are received. The loss is limited to the greater of (a) $300,000 ($150,000 for a married person filing separately), or (b) the taxpayer's total net farm income for the prior five tax years. Applicable subsidies are (1) any direct or counter-cyclical payments under title I of the Food, Conservation, and Energy Act of 2008 (or any payment elected in lieu of any such payment), or (2) any Commodity Credit Corporation (CCC) loan. ( Code Sec. 461(j) ) For partnerships and S corporations, the limit is applied at the partner or shareholder level. ( Code Sec. 461(j)(5) ) Total net farm income is an aggregation of all income and loss from farming businesses for the prior five tax years. Any loss that is disallowed under this rule in a particular year is carried forward to the next tax year and treated as a deduction attributable to farming businesses in that year. Farming losses due to fire, storm, or other casualty, or disease or drought, are disregarded for purposes of calculating the limitation.
Increased penalty for failure to file partnership or S corporation returns. Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is a statutory dollar amount times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months. The base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, increases from $89 to $195 per partner or shareholder. ( Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1) )
Electronic filing changes go into effect. Beginning in 2010, IRS will allow the electronic filing of Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, using the Employment Tax e-file System. Schedule R is a new form that must be completed by consolidated Form 941 filers, beginning with the first quarter 2010 Form 941. Form 2678, Employer/Payer Appointment of Agent, must be mailed to the applicable address listed on the instructions for the agent to be eligible to file Schedule R. After receiving IRS approval, the agent must file one Form 941 return for each tax period, using the agent's own employer identification number (EIN), regardless of the number of employers for whom the agent acts. The agent must maintain records that will disclose the full wages paid for each of his or her clients, as reported on the Schedule R. (IRS Publication 3823, Employment Tax e-file System Implementation and User Guide)
Standard mileage rate changes. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 50¢ per mile for business travel after 2009 (5¢ less than the 55¢ allowance for business mileage during 2009). For 2010, the depreciation component of the mileage rate is 23¢ per mile (up from 21¢ per mile for 2009 and 2008).
Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed 50¢ per mile for employment-connected business mileage during 2010 (down from 55¢ per mile for 2009), whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos during 2010 may be valued at 50¢ per mile if the conditions specified in Reg. § 1.61-21(e)(1) are met. ( Rev Proc 2009-54, 2009-51 IRB )
Many business tax breaks expired at the end of 2009. Unless Congress acts to retroactively revive them, all of the following business tax breaks won't be available this year because they expired at the end of 2009. Note that tax breaks that would be extended by the “Tax Extenders Act” as passed by the House of Representatives in December of 2009 (see Weekly Alert ¶ 1 12/17/2009 ) are indicated with an asterisk.
... Additional first-year 50% bonus depreciation for qualified property under Code Sec. 168(k)(2) (but note that certain aircraft and long-production-period property continues to be eligible if placed in service in 2010). In addition, the $8,000 increase in the first-year depreciation limit for passenger automobiles that are qualified property also expired at the end of 2009.
... For tax years beginning in 2010, (a) the maximum amount that may be expensed under Code Sec. 179 is $134,000 (down from $250,000 for tax years beginning in 2008 or 2009); and (b) the maximum annual expensing amount generally is reduced dollar-for-dollar by the amount of Code Sec. 179 property placed in service during the tax year in excess of $530,000 (down from $800,000 for tax years beginning in 2008 or 2009).
... Incremental research credit under Code Sec. 41 .*
... Election to accelerate AMT and research credits in lieu of additional first-year depreciation under Code Sec. 168(k)(4) .
... Five-year depreciation for farming business machinery and equipment under Code Sec. 168(e)(3)(B)(vii) .*
... Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements under Code Sec. 168(e)(3)(E)(iv) , Code Sec. 168(e)(3)(E)(v) , and Code Sec. 168(e)(3)(E)(ix) .*
... Deduction allowable for income attributable to domestic production activities in Puerto Rico under Code Sec. 199 .*
... Expensing of “brownfields” environmental remediation costs under Code Sec. 198(h) .*
... Credit for construction of new energy efficient homes under Code Sec. 45L .
... Encouragement of contributions of capital gain real property made for conservation purposes under Code Sec. 170(b)(1)(E) and Code Sec. 170(b)(2)(B) . *
... Enhanced charitable deduction for contributions of food inventory under Code Sec. 170(e)(3)(C) . *
... Enhanced charitable deduction for contributions of book inventories to public schools under Code Sec. 170(e)(3)(D) .*
... Enhanced deduction for corporate contributions of computer equipment for educational purposes under Code Sec. 170(e)(6)(G) .*
... The active financing exception from Subpart F of the Code. ( Code Sec. 953 , Code Sec. 954 )*
... The look-through treatment of payments between related controlled foreign corporations. ( Code Sec. 954(c) )*
... Seven-year straight line cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. ( Code Sec. 168(i)(15) )*
... The railroad track maintenance credit. ( Code Sec. 45G )*
... Film and television producers' election to expense the first $15 million of production costs incurred in the U.S. ($20 million if the costs are incurred in economically depressed areas in the U.S.). ( Code Sec. 181 )*
... The credit for training mine rescue team members. ( Code Sec. 45N )*
... Election to expense 50% of the cost of qualified underground mine safety equipment. ( Code Sec. 179E )*
... The credit for eligible small business employers equal to 20% of the sum of differential wage payments to activated military reservists. ( Code Sec. 45P )*
... The tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies (RICs). ( Code Sec. 871(k) )*
... Suspension on the taxable income limit for purposes of claiming depletion deductions on a marginal oil or gas well. ( Code Sec. 613(c)(6) )
... The new markets tax credit. ( Code Sec. 45(f)(1) )*

The IRS has issued further guidance on issues related to Code Sec. 7216. The IRS had previously issued final, temporary and proposed regulations that provide updated guidance concerning the disclosure and use of tax return information by tax return preparers under Code Sec. 7216 T.D. 9478.

Notice 2010-4

In Notice 2010-4, the IRS addressed three issues with respect to the use of taxpayer information to solicit new business from previous or existing clients.
Changes in law that could result in amended returns. A tax return preparer may use tax return information to contact taxpayers to inform them of changes in tax law that could affect the income tax liability on the taxpayers’ returns that were previously prepared or processed by this tax preparer. Code Sec. 7216 does not prohibit the use of tax return information to prepare a "tax return," and, under Reg. §301.7216-1(b)(1), a tax return includes an amended return. Accordingly, the preparer could use client tax return information to identify affected taxpayers, inform them regarding the change in tax law, advise whether it would be appropriate for them to file amended income tax returns, and assist in the preparation and filing of any amended returns.

Accountant or lawyer seeking to give compliance advice. A tax return preparer who is also an accountant may use tax return information to determine who might be affected by a prospective tax rule change in order to contact potentially affected taxpayers for whom the accountant/preparer reasonably expected to provide accounting services in the next year. The contact would notify these taxpayers of the change, explain how the change may affect them, and advise them with regard to actions they may take in response to the change. Reg. §301.7216-2(h)(1)(i) allows a preparer who is lawfully engaged in the practice of law or accountancy to use tax return information to provide other legal or accounting services to the taxpayer, and such services could include advice related to current and future income tax compliance.
Disclosure of taxpayer list to auxiliary service provider. Finally, tax return preparers may disclose their taxpayer lists kept under Reg. §301.7216-2(n) to a third party service provider holding itself out as providing services that include creation, publication, and distribution of newsletters, bulletins, or similar communications to taxpayers whose tax returns the tax return preparers have prepared or processed containing tax information and general business and economic information or analysis for educational purposes or for purposes of soliciting additional tax return preparation services for the tax return preparer. Although restrictions apply to transfers of taxpayer lists under Reg. §301.7216-2(n), a preparer is allowed under Reg. §301.7216-2(d)(1) to disclose, without taxpayer consent, tax return information to another tax return preparer located in the United States for the purpose of obtaining auxiliary services in connection with the preparation of any tax return, so long as the services provided are not substantive determinations or advice affecting the tax liability reported by taxpayers. The service provider, is prohibited from the further use or disclosure of the tax return information for purposes other than those related to the provision of the auxiliary services or as otherwise expressly permitted under Code Secs. 6713 and Code Sec. 7216.
Rev. Rul. 2010-5

In Notice 2010-5, the IRS discussed disclosure of information to tax return preparer insurance carriers. The IRS held that tax return preparers will not be liable for criminal penalties under Code Sec. 7216 and civil penalties under Code Sec. 6713 with respect to certain disclosures of tax return information made to the preparer's professional liability insurance carrier. Under Reg. §301.7216-2(a)(1), a tax return preparer may dislcose, without taxpayer consent, tax return information to another tax return preparer located in the United States in order to obtain auxillary services, not involving substantive determinations or tax advice. Disclosures, without taxpayer consent, may also be made to an attorney for the purpose of obtaining legal advice under Reg. §301.7216-2(g).
A professional liability insurance policy purchased by a return preparer is an auxiliary service provided in connection with the preparation of tax returns; thus, the insurance carrier is a tax return preparer. Accordingly, disclosures necessary for price quotes or to otherwise obtain or maintain professional liability insurance coverage will not result in penalties. This could include a list of client names and description of the services provided, Similarly, disclosures made to the insurance carrier as required for purposes of reporting and investigating claims or for the carrier's selection of an attorney to represent the return preparer will not result in penalties. This could include client names, a description of the services provided, a description of the claim or potential claim, and if necessary, copies of returns relevant to the claims. In both cases, disclosures beyond those that are necessary for the provision of the auxiliary services are prohibited. Finally, a return preparer may make disclosures to the selected attorney related to the claim or potential claim or in seeking legal advice from an attorney who is not a representative of the carrier, without taxpayer consent.

A married couple had unreported gambling income in an amount equal to their winnings from one day of playing a slot machine, less the money they began with and money they lost before cashing out. The couple, who were not professional gamblers, could not, however, net all wagering gains or losses they sustained throughout the year. Gambling losses incurred other than in the trade or business of gambling are allowable only as itemized deductions when calculating taxable income. Because the taxpayers elected to use the standard the deduction, they were not entitled to itemize their deductions.


George D. and Lillian M. Shollenberger v. Commissioner.
U.S. Tax Court, Dkt. No. 5504-08, TC Memo. 2009-306, December 28, 2009.

OPINION
Gross income includes all income from whatever source derived, including gambling. Sec. 61(a); McClanahan v. United States, 292 F.2d 630, 631-632 (5th Cir. 1961). In the case of a taxpayer not engaged in the trade or business of gambling, gambling losses from “wagering transactions” are allowable as an itemized deduction but “only to the extent of the gains from such transactions.” Sec. 165(d); see McClanahan v. United States, supra; Winkler v. United States, 230 F.2d 766 (1st Cir. 1956).
Respondent asserts that for purposes of applying section 165(d) to casual gamblers like petitioners, the correct analysis and methodology is set forth in Chief Counsel Advice 2008-011 (Dec. 5, 2008) (the Chief Counsel Advice), which states in part:
A key question in interpreting §165(d) is the significance of the term “transactions.” The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable. See Green v. Commissioner, 66 T.C. 538 (1976); Szkirscak [sic] v. Commissioner, T.C. Memo. 1980-129. Moreover, the statute uses the plural term “transactions” implying that gain or loss may be calculated over a series of separate plays or wagers.
The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300-$100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play. Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play. [Fn. ref. omitted.]
Applying this methodology, respondent concedes that if we find, as we have found, that on March 29, 2005, petitioners entered the casino with $500 and took home $1,600 of winnings, the amount of gambling income which petitioners should have reported on their 2005 return was $1,100 ($2,000 jackpot winnings less $500 brought to the casino for gambling and less $400 taken from the jackpot for additional gambling) rather than $2,000 as determined in the notice of deficiency.
Although petitioners have stated that they “agree with” the Chief Counsel Advice, they nevertheless maintain, contrary to the Chief Counsel Advice, that they should be allowed to offset their March 29, 2005, net winnings with $2,264 of gambling losses they claim to have incurred throughout 2005. They contend that this result is necessary to treat “regular and casual gamblers equally”. 2
The Code mandates, however, that casual gamblers be treated differently from taxpayers who are in the trade or business of gambling. In particular, gambling losses incurred in a trade or business of gambling are allowable in computing adjusted gross income pursuant to section 62(a)(1). Gambling losses incurred other than in the trade or business of gambling are allowable, if at all, as itemized deductions in calculating taxable income. See sec. 63(a), (d); Johnston v. Commissioner, 25 T.C. 106, 108 (1955); Cromley v. Commissioner, T.C. Memo. 2008-176; Heidelberg v. Commissioner, T.C. Memo. 1977-133.
Because petitioners were not engaged in the trade or business of gambling, their gambling losses are allowable only as itemized deductions. But because petitioners have elected the standard deduction, they are not entitled to itemize their deductions. 3 Sec. 63(b), (e); see Johnston v. Commissioner, supra; Heidelberg v. Commissioner, supra. We reject as without merit petitioners' contention that this statutory arrangement is unconstitutional. See Tschetschot v. Commissioner, T.C. Memo. 2007-38 (upholding constitutionality of section 165(d)); Valenti v. Commissioner, T.C. Memo. 1994-483 (same); cf. Gajewski v. Commissioner, 84 T.C. 980 (1985) (holding that for purposes of computing the minimum tax the 16th Amendment does not require that a casual gambler's gambling losses be netted against gambling gains).
Drawing an analogy to the recovery of a capital investment, this Court has held that a casual gambler's gross income from a wagering transaction should be calculated by subtracting the bets placed to produce the winnings, not as a deduction in calculating adjusted gross income or taxable income but as a preliminary computation in determining gross income. See Lutz v. Commissioner, T.C. Memo. 2002-89 (slot machine winnings); Hochman v. Commissioner, T.C. Memo. 1986-24 (horse race winnings). This Court has also recognized the practical difficulties of tracking the basis of each wager individually in a session of like play. See Green v. Commissioner, 66 T.C. 538, 548 (1976) (stating that a “tabulation of the amounts paid for chips less the amount paid to redeem chips would have served to verify the net win or loss figures”); Szkircsak v. Commissioner, T.C. Memo. 1980-129 (stating that “it is impractical to record each separate roll of the dice or spin of the wheel”). The methodology put forward by respondent is consistent with these principles.
Insofar as petitioners mean to suggest that section 165(d) permits their gross income from slot machine play to be calculated by netting all their 2005 slot machine gains and losses, we disagree. Section 165(d) does not define gross income but instead limits the deductibility of losses on wagering “transactions” to the amount of gains from wagering “transactions”. Consistent with general principles treating each wager as a separate taxable event under Federal tax law, see Abeid v. Commissioner, 122 T.C. 404, 411 (2004), section 165(d) clearly contemplates that gross income from wagering is determined in the first instance by reference to individual wagering “transactions.” To permit a casual gambler to net all wagering gains or losses throughout the year would intrude upon, if not defeat or render superfluous, the careful statutory arrangement that allows deduction of casual gambling losses, if at all, only as itemized deductions, subject to the limitations of section 165(d).
Respondent has effectively conceded that petitioners' gross income from their March 29, 2005, slot machine play was $1,100. Cf. LaPlante v. Commissioner, T.C. Memo. 2009-226 (holding that taxpayers failed to substantiate claims of net gambling gains and losses). Giving effect to this concession, we hold that petitioners had $1,100 of unreported gross income from gambling in 2005 and are entitled to no deduction for gambling losses.
To reflect the foregoing,
Decision will be entered under Rule 155.

Footnotes


1
Certain computational adjustments that follow from the resolution of this issue are not in controversy, and we do not address them.
2
By “regular” gamblers, we understand petitioners to mean gamblers who are in the trade or business of gambling.
3
A taxpayer may change an election to claim the standard deduction at any time before the period of limitations has expired. Sec. 63(e). Insofar as the record shows, petitioners have not sought to change their election to claim the standard deduction. In any event, on the record before us it would not appear advantageous for petitioners to do so.

Payments made by an individual to his former wife were not deductible as alimony under Code Sec. 215. The payments were not required by the couple's divorce agreement, which specifically stated that neither party was obligated to pay maintenance to the other party. An untitled single-page document that ordered the taxpayer to pay his ex-wife amounts related to his pension plan was incomplete and not explained at trial; therefore, the document was not probative. The Tax Court did, however, comment that its holding only referred to the year at issue, and that the taxpayer could ask a local court for a qualified domestic relations order (QDRO) with respect to the monthly payments of a portion of his pension.

Tax Extenders Act of 2009 JCX-60-09

http://www.jct.gov/publications.html?func=startdown&id=3640

The IRS denied innocent spouse relief to a wife for a tax deficiency arising from the married couple's failure to report on their joint income tax return income derived from the couple's business. The wife was not entitled to relief under Code Sec. 6015(b)(1)(B) or Code Sec. 6015(b)(1)(C) because she did not prove that the income was her husband's alone, and she did not offer any evidence of how the revenue could be allocated between the two spouses. Furthermore, testimony showed that the wife had reason to know that the return she signed understated the couple's income. The wife was also not entitled to relief under Code Sec. 6015(c) because the couple was married in the year in issue and continue to be married. Additionally, the wife did not prove that it was inequitable to hold her jointly liable under Code Sec. 6015(b)(1)(D) and Code Sec. 6015(f) because she did not satisfy several factors considered for equitable relief as set forth in Rev. Proc. 2003-61, 2003-2 C.B. 296.


Callie Sue Olson v. Commissioner., U.S. Tax Court, CCH Dec. 58,031(M), T.C. Memo. 2009-294, (Dec. 21, 2009)
Callie Sue Olson v. Commissioner.
U.S. Tax Court, Dkt. No. 20384-07, TC Memo. 2009-294, December 21, 2009.

MEMORANDUM FINDINGS OF FACT AND OPINION
GUSTAFSON, Judge: This case arises from petitioner Callie Sue Olson's request for “innocent spouse” relief from joint liability under section 6015 1 for 2003 taxes—i.e., an income tax deficiency of $13,600, an addition to tax of $3,400 under section 6651(a)(1) for failure to file the return on time, and an accuracy-related penalty of $2,720 under section 6662. In a statutory notice of deficiency issued to Ms. Olson and her husband on June 12, 2007, 2 the Internal Revenue Service (IRS) denied Ms. Olson's request for relief from joint liability; and in response, Ms. Olson timely filed a petition with the Court on September 10, 2007. The issue for decision is whether Ms. Olson is entitled under section 6015 to relief from joint liability. We find that Ms. Olson is not entitled to such relief.
ed.
OPINION
I. Standard and Scope of Review
When determining whether a taxpayer is entitled to relief under section 6015 (whether under subsection (b), (c), or (f)), we conduct a trial de novo, in which we may consider evidence introduced at trial which was not included in the administrative record. Porter v. Commissioner, 130 T.C. 115, 117 (2008). For all claims under section 6015 (including claims for equitable relief under section 6015(f)), we do not review for abuse of discretion but instead employ a de novo standard of review. Porter v. Commissioner, 132 T.C. ___ (2009). Respondent contends, however, that when the Court reviews a denial of relief under section 6015 (f), it must apply an abuse-of-discretion standard of review and must limit the scope of its review to the administrative record. We have held otherwise in the two Porter opinions cited above, and we do not repeat in this opinion the reasons for those holdings.
An appeal in this case would lie to the U.S. Court of Appeals for the Eighth Circuit. That court held in Robinette v. Commissioner, 439 F.3d 455, 460 (8th Cir. 2006), revg. 123 T.C. 85 (2004), that the Tax Court's scope of review in a collection due process (CDP) proceeding under sections 6320 and 6330 should be limited to the administrative record. 4 However, the CDP provisions of sections 6320 and 6330 are different from the “innocent spouse” provisions of section 6015, and those differences include the following:
The CDP petitioner's agency-level remedies are described at some length in section 6330(a), (b), and (c), and section 6330(d)(2) requires the CDP petitioner to “exhaust[] all administrative remedies”; but section 6015 makes no explicit provision of agency-level remedies for “innocent spouse” relief and says nothing about exhausting them. The agency's CDP action is repeatedly characterized in section 6330 as a “hearing”, but no agency hearing is explicitly provided for the “innocent spouse” in section 6015. 5 The taxpayer's CDP submission to the Tax Court under section 6330(d) is called an “appeal” and is not referred to as a “petition” anywhere in the statute, while section 6015(e) provides that the innocent spouse files a “petition” that is nowhere called an “appeal”. The Tax Court “determine[s]” innocent spouse relief, sec. 6015(e)(1)(A), but has “jurisdiction with respect to such matter” in the case of an appeal from the agency's CDP determination, sec. 6330(d)(1). 6
All these differences in statutory vocabulary suggest that even if a CDP case under sections 6320 and 6330 is held to be governed by a “record rule”, as the Court of Appeals for the Eighth Circuit holds, the same rule is not warranted for an “innocent spouse” case under section 6015. We therefore follow our Porter decisions and apply a de novo standard of review and scope of review in deciding this case under section 6015.
II. Joint and Several Liability and Section 6015 Relief
Section 6013(d)(3) provides that if a joint return is filed, the tax is computed on the taxpayers' aggregate income, and liability for the resulting tax is joint and several. See also sec. 1.6013-4(b), Income Tax Regs. (26 C.F.R.). That is, each spouse is responsible for the entire joint tax liability. However, section 6015 provides for relief from joint liability for spouses who meet the conditions of subsection (b) and for divorced and separated persons under subsection (c), and provides equitable relief in subsection (f) when the relief provided in subsections (b) and (c) is not available. Except as otherwise provided in section 6015, the taxpayer bears the burden of proof. See sec. 6015(c)(2); Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir. 2004). Because Ms. Olson generally requests relief under section 6015, we analyze her eligibility under all three subsections.
A. Subsection (b) Relief
Section 6015 provides as follows in subsections (a) and (b)(1):
SEC. 6015. RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURN.
(a) In General.—Notwithstanding section 6013(d)(3)—
(1) an individual who has made a joint return may elect to seek relief under the procedures prescribed under subsection (b); and
(2) if such individual is eligible to elect the application of subsection (c), such individual may, in addition to any election under paragraph (1), elect to limit such individual's liability for any deficiency with respect to such joint return in the manner prescribed under subsection (c).
Any determination under this section shall be made without regard to community property laws.
(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;
(B) on such return there is an understatement of tax attributable to erroneous items of one 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.
Section 6015(b)(1) thus authorizes “innocent spouse” relief if a taxpayer satisfies all five of the requirements set out in subparagraphs (A) through (E). Respondent does not dispute that Ms. Olson meets the requirements of subparagraphs (A) (joint return) and (E) (timely election), but he denies that she meets the other three requirements in subparagraphs (B), (C), and (D). We therefore discuss those three.
1. Erroneous Item of Non-requesting Spouse ( Section 6015(b)(1)(B)
Ms. Olson has the burden to prove that the understatement of tax on the joint return was attributable to erroneous items of Mr. Olson and not of Ms. Olson. See Jonson v. Commissioner, 118 T.C. 106, 113 (2002), affd. 353 F.3d 1181 (10th Cir. 2003). However, the erroneous item on the return was the business income of Fun Stuff Rental, 7 which was the family business. The business is identified on the company checks as “Greg & Callie's” (emphasis added), and Ms. Olson was active in the business—answering the phone, sending out mail, paying the help, handling the equipment, and working some of the jobs. Mr. and Ms. Olson's work was collaborative and mutual. Ms. Olson did not prove that the Fun Stuff Rental income was an item of Mr. Olson alone, and she did not offer any evidence of how the revenue could be allocated between the two spouses. See Ishizaki v. Commissioner, T.C. Memo. 2001-318, 82 T.C.M. (CCH) 995, 1000-1001 (2001) (income is not an item of one spouse when the other “actively and substantially participated”). We hold that Ms. Olson did not prove that she meets the requirement of section 6015(b)(1)(B).
2. Requesting Spouse's Knowledge ( Section 6015(b)(1)(C))
As for the requirement of section 6015(b)(1)(C), Ms. Olson did make a credible showing that “in signing the return * * * she did not know * * * that there was such understatement”, but she did not prove that she “had no reason to know”. 8 On the contrary, her testimony showed that she did have reason to know that the return she signed understated the liability. She had quit her hospital job the prior year, so that in 2003 the family's only income source was Fun Stuff Rental; she saw that family expenses were being paid from the revenues of the business; she had access to all the records of the business; yet she signed a joint return on which Fun Stuff Rental reported a loss of $10,376. From the facts immediately available to her, she had reason to know that Fun Stuff Rental had not really experienced a loss of $10,376.
The loss reported on the return that Ms. Olson signed simply cannot be reconciled with her knowledge of the business and the family activities. If she did not know that the return she signed understated the income of Fun Stuff Rental, it is because she chose to pay no attention to the matter. But as the Court of Appeals for the Eighth Circuit has observed:
a taxpayer cannot satisfy the lack of knowledge requirement by claiming that he or she failed to review the joint return before signing it. “ Section 6013(e) is designed to protect the innocent, not the intentionally ignorant.” Cohen v. Commissioner, T.C. Memo. 1987-537 (Oct. 20, 1987). * * *
Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991), revg. T.C. Memo. 1990-101. We hold that Ms. Olson did not prove that she had no reason to know that the loss reported on the joint return that she signed was erroneous. Rather, she could and should have known that the reported loss was erroneous.
3. Inequitable To Hold Liable ( Section 6015(b)(1)(D))
As for the requirement of section 6015(b)(1)(D), Ms. Olson did not show that “it is inequitable to hold * * * [her] liable for the deficiency in tax”. The statute provides that this judgment on the equities is to be made “taking into account all the facts and circumstances”. 9 Since this “inequitable” requirement under section 6015(b)(1)(D) is equivalent to the “inequitable” requirement under section 6015(f)(1), which is discussed below in part II.C, we relegate our analysis to that part of this opinion. In sum, Ms. Olson did not prove that it is inequitable to hold her jointly liable.
Thus, Ms. Olson fails to satisfy the requirements of subparagraphs (B), (C), and (D) of section 6015(b)(1) and does not qualify for relief under section 6015(b).
B. Subsection (c) Relief.
Section 6015(c) is entitled “Procedures to Limit Liability for Taxpayers No Longer Married or Taxpayers Legally Separated or Not Living Together.” Because Mr. and Ms. Olson were married in the year in issue and continue to be married, Ms. Olson is not entitled to relief under subsection (c).
C. Equitable Relief Under Subsection (f)
1. Standards Applicable Under Section 6015(f)
Subsection (f) of section 6015 provides as follows:
SEC. 6015(f). Equitable Relief.—Under procedures prescribed by the Secretary, if—
(1) taking into account all the facts and 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.
Thus, a taxpayer may be relieved from joint and several liability under section 6015(f) if, taking into account all the facts and circumstances, it is inequitable to hold the taxpayer liable.
In accord with the statutory provision that section 6015(f) relief is to be granted “[u]nder procedures prescribed by the Secretary,” the Commissioner has issued revenue procedures to guide IRS employees in determining whether a requesting spouse is entitled to relief from joint and several liability. See Rev. Proc. 2003-61, supra, 2003-2 C.B. 296, modifying and superseding Rev. Proc. 2000-15, 2000-1 C.B. 447. Revenue Procedure 2003-61 provides a three-step analysis for IRS employees to use in deciding whether to grant relief: Section 4.01 (discussed below) lists seven threshold conditions that must be met for any relief to be granted; section 4.02, not applicable here, lists circumstances in which relief will ordinarily be granted as to liabilities (unlike those at issue here) that were reported on a return; and section 4.03 (discussed below) sets out eight non exclusive factors to be considered in determining whether equitable relief should be granted.
The Tax Court has been given express authority to review the IRS's denial of equitable relief under section 6015(f). Section 6015(e)(1) provides:
[I]n the case of an individual who requests equitable relief under subsection (f) * * * [i]n addition to any other remedy provided by law, the individual may petition the Tax Court (and the Tax Court shall have jurisdiction) to determine the appropriate relief available to the individual under this section * * *.
In “determin[ing] the appropriate relief”, the Court reviews the IRS's three-step analysis prescribed in its revenue procedure, see Washington v. Commissioner, 120 T.C. 137, 147-152 (2003), but our review is not circumscribed by that matrix. Rather, we consider “all the facts and circumstances” in determining whether the taxpayer is entitled to “innocent spouse” relief. Sec.6015(f)(1); see Porter v. Commissioner, 132 T.C. at ___ (slip op. at 12-13); Lantz v. Commissioner, 132 T.C. ___ (2009).
2. Evaluation of Ms. Olson's Entitlement to Relief Under Section 6015(f)
As we now show, the IRS correctly employed the analysis prescribed in Revenue Procedure 2003-61, supra, to determine that Ms. Olson is not entitled to equitable relief under section 6015(f). We find that that the IRS's analysis did not exclude any relevant fact or circumstance that ought to be taken into account, and that relief from joint liability is not appropriate in this case.
a. Threshold Eligibility Under Rev. Proc. 2003-61, Sec. 4.01
Revenue Procedure 2003-61 sets out, in section 4.01, seven threshold conditions that all requesting spouses must meet in order for the IRS to grant relief pursuant to section 6015(f). 10 In his pretrial memorandum respondent asserts generally that Ms. Olson “fails to meet the threshold eligibility requirements” but does not specify which one or ones she fails to meet. It appears that she satisfies the first six but that she fails to satisfy the seventh—i.e., “The income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return”. As we explained above in part II.A.1, Ms. Olson failed to show that the underreported income of Fun Stuff Rental was an item attributable to Mr. Olson alone. Rather, Ms. Olson was also active in the business, so that its income is properly attributable not only to Mr. Olson but also to her. Ms. Olson therefore fails to meet the threshold conditions for the IRS to grant equitable relief.
We nonetheless proceed to consider “[i]n the alternative”, see O'Meara v. Commissioner, T.C. Memo. 2009-71, whether there are any additional facts and circumstances that would justify relief for Ms. Olson. We find that there are not.
b. Facts-and-Circumstances Test of Rev. Proc. 2003-61, Sec. 4.03
Where the requesting spouse satisfies the threshold conditions of section 4.01 of Revenue Procedure 2003-61 (not the case here), the IRS may grant relief under the facts-and-circumstances test of section 4.03. Under that test the IRS considers a “nonexclusive list of factors” in section 4.03(2)(a) to determine whether “taking into account all the facts and circumstances, it is inequitable to hold the requesting spouse liable”: (i) whether the requesting spouse is separated or divorced from the nonrequesting spouse; (ii) whether the requesting spouse would suffer economic hardship if not granted relief; (iii) whether the requesting spouse knew or had reason to know that the other spouse would not pay the liability; (iv) whether the nonrequesting spouse has a legal obligation to pay the outstanding tax liability pursuant to a divorce decree or agreement; (v) whether the requesting spouse received a significant benefit from the item giving rise to the deficiency; and (vi) whether the requesting spouse has made a good faith effort to comply with the tax laws for the taxable years following the taxable year to which the request for such relief relates. Other factors that the IRS considers under section 4.03(2)(b) are (i) whether the nonrequesting spouse abused the requesting spouse and (ii) whether the requesting spouse was in poor mental or physical health at the time he or she signed the tax return or at the time he or she requested relief.
We consider these factors and any other relevant facts and circumstances in determining whether the taxpayer is entitled to “innocent spouse” relief. No single factor is determinative, and all factors are to be considered and weighted appropriately. Haigh v. Commissioner, T.C. Memo. 2009-140. In this case the IRS's factors provide a sufficient basis for evaluating Ms. Olson's claim for equitable relief, and the record suggests no additional facts and circumstances that should be considered. We therefore address the factors listed in section 4.03 of Revenue Procedure 2003-61.
i. Marital Status
Ms. Olson was not divorced, separated, or living apart from Mr. Olson when she filed her request for “innocent spouse” relief. This factor weighs against granting relief. See McKnight v. Commissioner, T.C. Memo. 2006-155.
ii. Economic Hardship
Generally, economic hardship exists if collection of the tax liability will cause the taxpayer to be unable to pay reasonable basic living expenses. Butner v. Commissioner, T.C. Memo. 2007-136. Ms. Olson made no showing of economic hardship, so this factor weighs against granting relief.
iii. Knowledge or Reason To Know
As is discussed above in part II.A.2, Ms. Olson has failed to establish that she did not have reason to know of the item giving rise to the deficiency (i.e., the income of Fun Stuff Rental). This factor weighs against granting relief. See Beatty v. Commissioner, T.C. Memo. 2007-167.
iv. Nonrequesting Spouse's Legal Obligation
Where a divorce decree or other court order gives the nonrequesting spouse a legal obligation to pay the liability, this fact can weigh in favor of granting relief to the requesting spouse. No divorce decree or separation order imposes such a liability on Mr. Olson, and this factor therefore weighs against granting relief to Ms. Olson.
v. Significant Benefit
While Ms. Olson did share in the benefit of the Fun Stuff Rental income in 2003 and did share with Mr. Olson the benefit of the money that they did not use to pay their tax liability, there is nothing in the record that indicates that Ms. Olson “received significant benefit (beyond normal support) from the unpaid income tax liability or item giving rise to the liability”, and respondent does not contend that she did. Therefore, this factor weighs moderately in favor of relief. See Magee v. Commissioner, T.C. Memo. 2005-263.
vi. Compliance With Federal Tax Laws
As of the time the IRS issued the notice of deficiency that denied Ms. Olson's request for relief for 2003, the Olsons had not filed returns for 2004 and 2005, so respondent contends that Ms. Olson had not (for purposes of Rev. Proc. 2003-61, sec. 4.03(2)(a)(vi)) “made a good faith effort to comply with income tax laws in the taxable years following the taxable year or years to which the request for relief relates.” We have found that in 2003 the income of Fun Stuff Rental was an item of both Mr. and Ms. Olson. However, the record is not clear on this point as to 2004 and 2005; and when the IRS determined deficiencies for 2004 and 2005, it issued the notice of deficiency to Mr. Olson only. Since this factor, even if found in Ms. Olson's favor, would not sufficiently tip the scales to justify relief, we do not decide this issue and instead assume arguendo that this factor weighs in favor of relief. See Fox v. Commissioner, T.C. Memo. 2006-22.
vii. Abuse
There is no evidence or allegation of abuse by Mr. Olson. Therefore, this factor is neutral. See Magee v. Commissioner, supra.
viii. Mental or Physical Health
Ms. Olson has not alleged, nor does the record show, that her mental or physical health was poor at the relevant times. Therefore, this factor is neutral. See id.
When we weigh the facts and circumstances implicated in these eight factors, we find that Ms. Olson is not entitled to relief. Two factors are neutral, no more than two factors weigh in favor of relief, and at least four factors weigh against relief. We find that the two favorable factors (subsequent compliance and lack of significant benefit) are easily outweighed by the four unfavorable factors: Ms. Olson lived with and continues to live with Mr. Olson; she showed no economic hardship that would result if relief were not granted; she should have known of the understatement reflected on the return; and Mr. Olson is not under any order or decree to pay the liability. As a result, when the facts and circumstances are weighed, Ms. Olson is not entitled to “innocent spouse” relief under section 6015(f) with respect to the Olsons' joint Federal income tax liability for 2003.
In sum, we find that Ms. Olson is not entitled to relief from joint liability under section 6015(b), (c), or (f).
To reflect the foregoing,
Decision will be entered for respondent.

Footnotes


1
Unless otherwise indicated, all citations of sections refer to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and all citations of Rules refer to the Tax Court Rules of Practice and Procedure.
2
The 2003 deficiency itself was disputed in Gregory John Olson v. Commissioner, docket No. 20383-07, in which case Ms. Olson was not a petitioner. Mr. Olson conceded the case, and decision was entered on November 17, 2009, sustaining against him the IRS's deficiency determination.
3
In the “Filing Status” block on the first page of the return, neither the block for “Married filing jointly” nor any other block is checked. However, the names of both Mr. and Ms. Olson appear on the appropriate lines (with Ms. Olson's name on the line marked “If a joint return, spouse's first name and initial”); and Ms. Olson signed in the signature block on the second page, under “Spouse's signature. If a joint return, both must sign.” The IRS treated the return as a joint return, and Ms. Olson's request for innocent spouse relief characterized the return as a joint return.
4
This Court held to the contrary in Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455, 460 (8th Cir. 2006), and in CDP cases we generally do not follow the record rule. However, in cases appealable to Courts of Appeals that follow the record rule, we do follow those precedents pursuant to our “ Golsen rule”. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971). However, as we noted in Porter v. Commissioner, 130 T.C. 115, 120 (2008), the Court of Appeals' decision in Robinette interpreting section 6330 does not govern the interpretation of section 6015.

5
See Porter v. Commissioner, supra, 130 T.C. at 135 (Thornton, J., concurring); Friday v. Commissioner, 124 T.C. 220, 222 (2005) (“There is in section 6015 no analog to section 6330 granting the Court jurisdiction after a hearing at the Commissioner's Appeals Office”).
6
See Porter v. Commissioner, supra at 120; id. at 134-135 (Thornton, J., concurring).
7
Ms. Olson did not argue that the understatement was attributable to the erroneous exclusion of one or more specific revenue items of which she could not have been aware or that it was attributable to the erroneous deduction of one or more specific items of expense whose legitimacy she could not have known. Since she did not show what particular items contributing to the income of Fun Stuff Rental gave rise to the understatement, and since in any event the bank statements and other records were all accessible to her, this argument could not have prevailed.
8
See also sec. 6015-2(c), Income Tax Regs. (26 C.F.R.) (“A requesting spouse has * * * reason to know of an understatement * * * if a reasonable person in similar circumstances would have known of the understatement. * * * All of the facts and circumstances are considered in determining whether a requesting spouse had reason to know of an understatement. The facts and circumstances that are considered include, but are not limited to, the nature of the erroneous item and the amount of the erroneous item relative to other items; the couple's financial situation; the requesting spouse's educational background and business experience; the extent of the requesting spouse's participation in the activity that resulted in the erroneous item; whether the requesting spouse failed to inquire, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question; and whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (e.g., omitted income from an investment regularly reported on prior years' returns)”).
9
See also sec. 1.6015-2(d), Income Tax Regs. (26 C.F.R.) (“All of the facts and circumstances are considered in determining whether it is inequitable to hold a requesting spouse jointly and severally liable for an understatement. One relevant factor for this purpose is whether the requesting spouse significantly benefitted, directly or indirectly, from the understatement. A significant benefit is any benefit in excess of normal support. Evidence of direct or indirect benefit may consist of transfers of property or rights to property, including transfers that may be received several years after the year of the understatement. Thus, for example, if a requesting spouse receives property (including life insurance proceeds) from the nonrequesting spouse that is beyond normal support and traceable to items omitted from gross income that are attributable to the nonrequesting spouse, the requesting spouse will be considered to have received significant benefit from those items. Other factors that may also be taken into account, if the situation warrants, include the fact that the requesting spouse has been deserted by the nonrequesting spouse, the fact that the spouses have been divorced or separated, or that the requesting spouse received benefit on the return from the understatement. For guidance concerning the criteria to be used in determining whether it is inequitable to hold a requesting spouse jointly and severally liable under this section, see Rev. Proc. 2000-15 (2000-1 C.B. 447), or other guidance published by the Treasury and IRS (see § 601.601(d)(2) of this chapter)”). The revenue procedure cited in the regulation has been superseded by Revenue Procedure 2003-61, 2003-2 C.B. 296.

10
See Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. at 297 (all requesting spouses must meet seven threshold conditions: (i) The requesting spouse filed a joint return for the taxable year for which he or she seeks relief; (ii) relief is not available to the requesting spouse under section 6015(b) or (c); (iii) the requesting spouse applies for relief no later than 2 years after the date of the Service's first collection activity after July 22, 1998, with respect to the requesting spouse; (iv) no assets were transferred between the spouses as part of a fraudulent scheme by the spouses; (v) the nonrequesting spouse did not transfer disqualified assets to the requesting spouse; (vi) the requesting spouse did not file or fail to file the return with fraudulent intent; and (vii) absent enumerated exceptions, the income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return). As to requirement (iii) above, we have held that the two-year rule is invalid. See Lantz v. Commissioner, 132 T.C. ___ (2009).

Save this case. The Tax Court has finally been able to hold the IRS to a strict reading of the levy prohibition in section 6343. I take my hat off to Judge Dawson who knows how to read a statute.
The IRS's determination to proceed with a levy was an abuse of discretion. Although the settlement officer determined that a levy on the taxpayer's car and wages would create an economic hardship, the officer determined to proceed with the levy because the taxpayer was not in compliance with filing and payment requirements. However, neither case law nor the Internal Revenue Code or regulations under Code Sec. 6343 condition the release of a levy upon compliance with filing and payment requirements when there is an economic hardship. Rather, the regulations require the release of a levy that creates an economic hardship; therefore, the settlement officer's determination to proceed with the levy was contrary to law and an abuse of discretion.—

Kathleen A. Vinatieri v. Commissioner.
U.S. Tax Court, Dkt. No. 15895-08L, 133 TC —, No. 16, December 22, 2009.
.
R issued P a notice of intent to levy to collect P's unpaid Federal income taxes for 2002..P timely requested a hearing under sec. 6330, I.R.C.
P submitted to the settlement officer Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, indicating she had monthly income of *800 and expenses of *800, had *14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of *300..If P's wages are levied on she will be unable to pay her reasonable basic living expenses..If her car is levied on, she will be unable to work.
The settlement officer stated in her log that P meets the criteria to have her account reported as currently not collectible because of hardship in accordance with the Internal Revenue Manual (IRM). However, R's Appeals Office issued a notice of determination to proceed with levy, stating that P was not entitled to collection alternatives because she had not filed her 2005 and 2007 Federal income tax returns. P timely petitioned for review of that determination under sec. 6330(d), I.R.C..R filed a motion for summary judgment..P, proceeding pro se, did not file a cross-motion for summary judgment.
Under regulations prescribed by the Secretary, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property if, inter alia, the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer.. Sec. 6343(a)(1)(D), I.R.C. The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.”.Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
1. Held:. Sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs., require release of a levy that creates an economic hardship regardless of the taxpayer's noncompliance with filing required returns.
2. Held, further, a levy on P's wages or car would cause P to be unable to pay her reasonable basic living expenses, creating an economic hardship that would require release of the levy pursuant to sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
3. Held, further, R's motion for summary judgment is denied because R's determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion.
OPINION
DAWSON, Judge:.This matter is before the Court on respondent's motion for summary judgment filed pursuant to Rule 121. 1 Petitioner timely filed a petition pursuant to section 6330(d) appealing respondent's determination to proceed with collection by levy of petitioner's 2002 income tax liability. The issue to be decided is whether respondent's determination was an abuse of discretion.
Background
Petitioner resided in Tennessee when she filed the petition. Her residence is an apartment that she rents for *600 per month.
On September 13, 2007, respondent sent petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice)..The underlying tax liability was attributable to unpaid self-assessed tax reported on her 2002 return..Petitioner timely requested a hearing on September 24, 2007, and the hearing was conducted through correspondence and by telephone with the settlement officer.
Petitioner first learned of the collection activity when her employer notified her about the proposed levy on her wages. When the settlement officer asked petitioner whether she wanted to enter into an installment agreement, petitioner said “she has nothing.” 2 Petitioner told the settlement officer that she has pulmonary fibrosis and is dying..Because of her health she can only find part-time employment.
The settlement officer could not find a record that petitioner had filed a return for 2005..Petitioner explained to the settlement officer that the payroll company responsible for completing her 2005 Form W-2, Wage and Tax Statement, was no longer in business..She had attempted to get the tax information from the Internal Revenue Service (IRS), but the IRS had no information regarding her income for 2005.
The settlement officer told petitioner that she might be able to have her account placed in currently not collectible status..The settlement officer asked petitioner to submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a diagnosis regarding her current health condition.
Petitioner sent a completed Form 433-A, indicating she had monthly income of *800 and expenses of *800, had *14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of *300..The Form 433-A reported that petitioner did not own any other assets..Verification received by the settlement officer was consistent with the information petitioner provided in the Form 433-A..Petitioner was unable to obtain a written diagnosis of her medical condition from her physician because her physician would provide a diagnosis only ina claim for worker's compensation.
The settlement officer's log entry dated May 15, 2008, states:
TP [petitioner] meets the criteria to have account placed in CNC [currently not collectible] status per IRM 5.16.[1.]2.9 Hardship..The balance due is less than 10K and the TP has stated she has a terminal illness..CIS verification is not required..The TP has stated she has nothing and is not able to full pay or make payments..However, the TP is not in compliance. The TP has not filed a 2005 return and there is no record of the 2007 tax return being filed..The TP stated she does not have income information for 2005 and company that did payroll is no longer in business. TP stated she contacted IRS and they advised her they have no income information..There is no information per IRTRL..S/O [the settlement officer] contacted TP regarding filing of the 2007 return..The TP stated the return was filed late..The S/O requested the TP fax a copy of the return with the W-2..TP to fax information by 5-19-08..S/O asked TP if she obtained health diagnosis and the TP stated the doctor would only give her something if she is applying for diability..S/O requested income information for 2005 per IRPTRE.
The settlement officer's log entry dated May 20, 2008, states:
TP did not provide a copy of 2007 return and there is no record that the return has been filed per IDRS research..The TP was employed in 2007 and is currently employed..The 2005 return has not been filed..Since the TP is not in compliance, collection alternative cannot be considered..S/O will issue determination letter..If the 2005 income information is received, the S/O will forward it to the TP.
Respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) dated June 2, 2008, sustaining the proposed levy action and stating that, because petitioner was not in compliance with filing the required tax returns, a collection alternative could not be considered..The notice of determination was reviewed and signed by the Appeals team manager..The attachment to the notice of determination stated:
The settlement officer inquired about a collection alternative and you stated you could not make payments. You stated you had pulmonary fibrosis and can only work part-time hours due to your heath condition..The Settlement officer [who] advised you of the collection alternative however explained a collection alternative could not be considered because you were not in compliance with filing required tax returns. * * *
The attachment explained the balancing of efficient tax collection with concern regarding intrusiveness as follows:
Appeals has verified, or received verification, that applicable laws and administrative procedures have been met; has considered the issues raised; and has balanced the proposed collection with the legitimate concern that such action be no more intrusive than necessary by IRC Section 6330(c)(3).
Collection alternatives include full payment, installment agreement, offer in compromise and currently-not-collectible..However, since unfiled tax returns exist, the only alternative at present is to take enforced action by levying your assets..It is Appeals decision that the proposed levy action is appropriate..The proposed levy action balances the need for the efficient collection of the taxes with the legitimate concern that any collection action be no more intrusive than necessary.
Neither the notice of determination nor the attachment reflect any consideration of the fact that the levy would create an economic hardship as stated by the settlement officer in her.daily log and supported by the Form 433-A petitioner submitted.
Petitioner timely filed a petition in this Court challenging respondent's determination..Respondent filed the motion for summary judgment, and the Court ordered petitioner to file a response. 3 Petitioner filed a response to respondent's motion for summary judgment but did not file a cross-motion for summaryjudgment. 4 In her response petitioner describes her situation as follows:
To Whom It May Concern,
I don't know what you want to know cause I don't understand all the legal stuff you sent me..I can't afford a lawyer..And the closest legal aid is in Knoxville 30 miles away..My poor car will not go that far..So I will start at the beginning of my story and see if you can help me.
I was in an unhealthy relationship for many years. During a great deal of that time my husband was doing alcohol and drugs..I had 2 children plus his 3 to take care of..I had been doing janitorial work at a strip mall * * *..It was the only place that I could work that I could take my [then] 3 year old daughter with me..I could not support my family and pay day care. * * * My husband took care of bills and such cause he demanded that I turn over my money..We even got a divorce during that time cause I was not obeying him. * * *
Now I am not looking for sympathy just understanding..Do you know how hard it is to be a single parent?.* * * I have a high school education and nothing else.
It was nearly five years before I was notified of a problem by the I.R.S..Danny [petitioner's former spouse] was suppose to be doing taxes..He even made me sign a form that because he made more money he could claim my kids on his taxes cause we were no longer legally married.
I got all the W-2's from the I.R.S. except 2005 that they still have not sent me..That is why they are not done..I did all those taxes and forfeited the refunds..I do not remember what that total came to. But it was enough to pay I would say most of back taxes..The 2007 taxes were late and I don't know why they didn't arrive..I sent a second copy in as soon as my son gave me my copy..He had my copy for college financial aid and he lost them for a bit of time.
I am not a rich person..I work in a job so I can be home with my daughter..I left my husband in July after he threatened to beat my daughter with a baseball bat..Beating me is one thing but I could not have him beating my girl..So I am a single parent again..Right now we have not had much work in nearly a year..I have rent of 600 a mo..Utilities of 150 and get food stamps or I wouldn't eat..I make about 700-800 [per] month. There are no better jobs in our town..My daughter is only 11 so its not like I can leave her alone at night or on weekends..D.H.S. says it's not even legal..She is too young..There is no child care and I have no family here..I have pulmonary fibrosis that makes me sick all the time and the diagnosis says I have about 10 yrs to live..Right now I can work thank God.
I did my taxes this year [for 2008] and you are getting a little over *4,700..I'm not asking for much just a break..You can have my tax returns [refunds ?] I don't care..Well I do that is a tremendous loss but oh well..I don't have any money to send you on a monthly basis..Can we stop all the penalties..They are killing me..I will never be able to pay it off. * * * I let a relationship screw me up..I am truly sorry for that and am begging for a lifeline here..You can come to my home and see for yourself..I don't have fancy t.v.'s or even cable except for internet..I can't afford a phone..My clothes have holes in them. I even cut my own hair..If I could pay this off faster I would just to stop the nightmares it gives me.
Discussion
A. Summary Judgment
Summary judgment is used to expedite litigation and avoid unnecessary and expensive trials..The Court will render a decision on a motion for summary judgment if the pleadings, answers to interrogatories, depositions, admissions, and other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law..Rule 121(b). Because the effect of granting a motion for summary judgment is to decide the case against a party without allowing that party an opportunity for a trial, the Court should grant the motion only after a careful consideration of the case.. Associated Press v. United States, 326 U.S. 1, 6 (1945); Kroh v. Commissioner, 98 T.C. 383, 390 (1992).
For purposes of respondent's motion for summary judgment, respondent has the burden of showing the absence of a genuine issue as to any material fact..Petitioner is afforded the benefit of all reasonable doubt, and the material submitted by both sides is viewed in the light most favorable to petitioner. See, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Kroh v. Commissioner, supra at 390.
Respondent moves the Court for summary judgment on the ground that the settlement officer did not abuse her discretion in rejecting collection alternatives and determining to proceed with levy because petitioner was not in compliance with the filing requirements..Petitioner asks that the levy not be sustained because, if her wages are taken, she will be unable to pay her basic living expenses; and, if her car is taken, she will not be able to work.
B. Collection of Federal Taxes by Levy
If a taxpayer liable for Federal taxes fails to pay the taxes within 10 days after notice and demand, section 6331 authorizes the Secretary to collect the tax by levy upon all property and rights to property (except any property that is exempt under section 6334) belonging to the taxpayer or on which there is a lien for the payment of the tax.
Section 6343(a)(1) provides that, under regulations prescribed by the Secretary, if the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property. 5 Sec. 6343(a)(1)(D)..The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses.” Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.
A taxpayer alleging that collection of the liability would create undue hardship must submit complete and current financial data to enable the Commissioner to evaluate the taxpayer's qualification for collection alternatives or other relief. Picchiottino v. Commissioner, T.C. Memo. 2004-231..The regulations provide that, for purposes of determining the taxpayer's reasonable amount of living expenses, any information that is provided by the taxpayer is to be considered, including the following:
(A) The taxpayer's age, employment status and history, ability to earn, number of dependents, and status as a dependent of someone else;
(B) The amount reasonably necessary for food, clothing, housing * * *, medical expenses * * *, transportation, current tax payments * * *, alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer's production of income * * *;
(C) The cost of living in the geographic area in which the taxpayer resides;
(D) The amount of property exempt from levy which is available to pay the taxpayer's expenses;
(E) Any extraordinary circumstances such as special education expenses, a medical catastrophe, or natural disaster; and
(F) Any other factor that the taxpayer claims bears on economic hardship and brings to the attention of the director.
Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs.
C. Section 6330 Procedures
Section 6330(a) provides the general rule that no levy may be made on any property or right to property of any taxpayer unless the Secretary has provided 30 days' notice to the taxpayer of the right to an administrative hearing before the levy is carried out..If the taxpayer makes a timely request for an administrative hearing, the hearing is conducted by the IRS Office of Appeals (Appeals Office) before an impartial officer. Sec. 6330(b)(1), (3).
The taxpayer may raise any relevant issue during the hearing, including appropriate spousal defenses and challenges to “the appropriateness of collection actions”, and may make “offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.”. Sec. 6330(c)(2)(A)..The taxpayer also may raise challenges to the existence or amount of the underlying tax liability if he/she did not receive a notice of deficiency for that liability or did not otherwise have an opportunity to dispute it.. Sec. 6330(c)(2)(B).
During the hearing the Appeals officer must verify that the requirements of applicable law and administrative procedure have been met, consider issues properly raised by the taxpayer, and consider whether any proposed collection action balances the need for the efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary.. Sec. 6330(c)(3)..The Appeals Office then issues a notice of determination indicating whether the proposed levy may proceed.
Under section 6330(d)(1) the taxpayer may petition this Court to review the determination made by the Appeals Office. See sec. 301.6330-1(f)(1), Proced. & Admin. Regs..Where, as in this case, the underlying tax liability is not at issue, we review the Appeals Office's determinations regarding the collection action for abuse of discretion.. Goza v. Commissioner, 114 T.C. 176 (2000)..An abuse of discretion occurs if the Appeals Office exercises its discretion “arbitrarily, capriciously, or without sound basis in fact or law.”. Woodral v. Commissioner, 112 T.C. 19, 23 (1999).
When a taxpayer establishes in a pre-levy collection hearing under section 6330 that the proposed levy would create an economic hardship, it is unreasonable for the settlement officer to determine to proceed with the levy which section 6343(a)(1)(D) would require the IRS to immediately release..Rather than proceed with the levy, the settlement officer should consider alternatives to the levy.
Respondent argues under the holdings of Rodriguez v. Commissioner, T.C. Memo. 2003-153, and McCorkle v. Commissioner, T.C. Memo. 2003-34, that there is no abuse of discretion if a settlement officer rejects collection alternatives because the taxpayer was not in compliance with the filing requirements for all required tax returns. 6
Generally, we have found the Commissioner's policy requiring individuals seeking collection alternatives to be current with filing their returns to be reasonable. 7 However, taxpayers in those cases have had sufficient income to meet basic living expenses..See, e.g., Speltz v. Commissioner, 124 T.C. 165, 178 (2005) (taxpayers claimed hardship because the tax liability was disproportionate to the value that they received from initial stock offerings and because they had already been forced to change their lifestyle), affd. 454 F.3d 782 (8th Cir. 2006); Peterson v. Commissioner, T.C. Memo. 2009-46 (the Court upheld rejection of taxpayers' offer of *20,000 to compromise *70,000 liability where, although they had minimal income from Social Security retirement and disability payments, they had reasonable collection potential of *68,000 from two parcels of real property valued at *80,000); Fangonilo v. Commissioner, T.C. Memo. 2008-75 (Commissioner's refusal to treat taxpayer's tax liability as currently not collectible was not an abuse of discretion where although taxpayer's income was not sufficient to meet his stated monthly living expenses, he had a liquid asset worth more than his tax liability); Willis v. Commissioner, T.C. Memo. 2003-302 (taxpayers' ability to make some payments toward their cumulative liability made them ineligible to have the cumulative liability classified as currently not collectible); Rodriguez v. Commissioner, T.C. Memo. 2003-153 (taxpayer had not filed returns for 12 years and did not submit all of the financial information supporting her offer-in-compromise that the settlement officer requested); Ashley v. Commissioner, T.C. Memo. 2002-286 (taxpayer had income in excess of expenses and sufficient equity in his real property to pay his tax liability in full).
We have found no cases addressing the requirement that the taxpayer be current with filing returns in a levy case involving economic hardship under section 6343(a)(1)(D) and section 301.6343-1(b)(4), Proced. & Admin. Regs..Neither section 6343 nor the regulations condition a release of a levy that is creating an economic hardship on the taxpayer's compliance with filing and payment requirements..The purpose of section 6330 is to “afford taxpayers adequate notice of collection activity and a meaningful hearing before the IRS deprives them of their property.”.S. Rept. 105-174, at 67 (1998), 1998-3 C.B. 537, 603 (emphasis added)..A determination in a hardship case to proceed with a levy that must immediately be released is unreasonable and undermines public confidence that tax laws are being administered fairly..In a section 6330 pre-levy hearing, if the taxpayer has provided information that establishes the proposed levy will create an economic hardship, the settlement officer cannot go forward with the levy and must consider an alternative.
D. Appeals Office's Determination To Proceed With Levy of Petitioner's Assets
The financial information petitioner submitted on the Form 433-A, which was consistent with other information the settlement officer obtained, showed that if petitioner's wages are levied on, she will be unable to pay her basic living expenses; and, if her car is levied on, she will not be able to work..After analyzing petitioner's financial information, the settlement officer concluded that the levy would create an economic hardship and so stated in her log..However, the settlement officer determined collection alternatives to the levy, including an installment agreement, an offer-in-compromise, and reporting the account as currently not collectible, were not available because petitioner had not filed her 2005 and 2007 returns..The settlement officer's determination to proceed with the levy was reviewed and approved by the Appeals team manager who signed the notice of determination..Although the attachment to the notice of determination shows that the Appeals team manager was aware of petitioner's financial situation and health problems, the Appeals team manager signed the notice of determination to proceed with the levy because petitioner had not filed her 2005 and 2007 returns..Proceeding with the levy would be unreasonable because section 6343 would require its immediate release, and the determination to do so was arbitrary..The determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion..Respondent is not entitled to summary judgment, and respondent's motion will be denied.
An order denying respondent's motion will be issued.

Footnotes


1
All Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code.
2
Petitioner explained to the settlement officer that she had previously agreed to pay in installments and that she was told she would be sent envelopes for each payment, but she never received the envelopes or monthly bills.
3
In the order we observed that our preliminary review of the record indicated that the proposed levy action involved a hardship situation and that petitioner needed the assistance of an attorney..We urged petitioner to contact the legal aid society or the local bar association pro bono services and provided their addresses and phone numbers.
4
After petitioner filed her response to respondent's motion for summary judgment, respondent filed a motion to continue the case wherein respondent stated that petitioner was in the process of submitting a collection alternative to the IRS and that, if the alternative is accepted by the IRS, a trial in this case would not be necessary..The Court granted respondent's motion and directed the parties to file a status report on or before July 27, 2009..In a status report filed on July 17, 2009, respondent reported that respondent has not received any communication from petitioner and requested the Court to grant respondent's motion for summary judgment.
5
The regulations provide a method whereby a taxpayer may inform the Secretary that a levy is creating an economic hardship and request that the levy be released..See sec. 301.6343-1(c), Proced. & Admin. Regs..“A taxpayer who wishes to obtain a release of a levy must submit a request for release in writing or by telephone to the district director for the Internal Revenue district in which the levy was made.”. Id..However, service center directors and compliance center directors (to whom requests by taxpayers are not made) who have determined that a levy is creating an economic hardship must also release the levy and promptly notify the taxpayer of the release pursuant to sec. 301.6343-1(a), Proced. & Admin. Regs.
6
Generally, the IRS will not grant an installment agreement, accept an offer-in-compromise, or report an account as currently not collectible if any tax return for which the taxpayer has a filing requirement has not been filed..See Internal Revenue Manual pts. 5.14.1.4.1(4)-(6) (Sept. 26, 2008) (installment agreements); 5.8.3.13(1), (2), (4) (Sept. 23, 2008) (offers-in-compromise); 5.16.1.1(5) and (6), 5.16.1.2.9(8) (May 5, 2009) (currently not collectible), 5.1.11.2.3 (June 2, 2004) (general collection procedures).
7
In Estate of Atkinson v. Commissioner, T.C. Memo. 2007-89, we found reasonable requirements that an entity seeking collection alternatives to full payment, including reporting an account as currently not collectible, filing any outstanding tax returns and submitting a full financial statement and verification information for analysis..Mandatory release of levy creating an economic hardship applies only to individuals..Sec. 301.6343-1(b)(4), Proced. & Admin. Regs.