Sharwell v. CIR, 19265.

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Citation419 F.2d 1057
Docket NumberNo. 19265.,19265.
PartiesRoslyn SHARWELL, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Decision Date24 December 1969

Sol Goodman, Goodman & Goodman, Cincinnati, Ohio, on brief, for petitioner-appellant.

Stephen H. Hutzelman, Dept. of Justice, Washington, D. C., for respondent-appellee; Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, William A. Friedlander, Stephen H. Hutzelman, Attys., Dept. of Justice, Washington, D. C., on brief.

Before PHILLIPS, Chief Judge, COMBS, Circuit Judge, and TAYLOR,* District Judge.

PHILLIPS, Chief Judge.

This is another case in the manner of Scudder v. Commissioner of Internal Revenue, 405 F.2d 222 (6th Cir.), cert. denied, 396 U.S. 886, 90 S.Ct. 176, 24 L.Ed.2d 161, and Huelsman v. Commissioner of Internal Revenue, 416 F.2d 477 (6th Cir.), in which a wife seeks to be relieved of tax liability for money embezzled or fraudulently obtained by her husband which he failed to report on the couple's joint income tax return.

This appeal is from a decision of the Tax Court holding petitioner Mrs. Roslyn Sharwell liable for $393,061.37 in income tax deficiencies for the years 1958-59. T.C. Memo 1968-89. These deficiencies arose out of the Commissioner's determination that the income had been omitted fraudulently by the husband from the joint income tax returns filed by petitioner and her husband for the taxable years. The Commissioner did not press the fraud penalties originally assessed against her pursuant to 26 U.S.C. § 6653(b).

Petitioner and her husband Sherman Sharwell at all times involved herein each owned fifty per cent of the shares of stock of the Sharwell Tobacco Company (Sharwell Tobacco), an Ohio corporation. During the years 1948 through 1960, Sharwell Tobacco engaged in merchandising tobacco and miscellaneous products at the wholesale level.

Mr. and Mrs. Sharwell1 were married in November 1936, divorced in 1949, remarried in 1950, separated in 1960, and again divorced in April 1963.

For the taxable year 1949, when petitioner was divorced from Mr. Sharwell, she filed a separate return. For the taxable years 1950 through 1959 she did not file separate income tax returns. For 1960, when she again was separated from Mr. Sharwell, she filed a separate return.

In 1954, petitioner received a distribution from her father's estate in the form of real estate, stocks and bonds, and other assets, with a total value of approximately $200,000. Petitioner began to keep careful records of the income she received and maintained a ledger for the years 1955 through 1959 in which she recorded all of her income. Petitioner also retained the brokerage slips relating to her capital gains and losses and the cancelled checks for charitable contributions.

With respect to the filing of income tax returns, it was the practice of petitioner to examine all her cancelled checks for the year and, after determining which reflected deductible contributions, to send these along with the ledger and brokerage slips to her husband or his accountant, so that her income could be included with that of her husband. Returns so prepared and captioned "Sherman S. and Roslyn Sharwell" were filed for each taxable year from 1954 through 1959. Petitioner signed the return for 1954 which reflected significant capital gains on assets passing to her through her father's estate. Although each of the other returns purported to be signed by petitioner, only the signature on the 1954 return was genuine. On each return the question as to whether the wife or husband was filing a separate return was marked "no."

During the taxable years 1954-59 the petitioner had from $5,000 to $8,000 income and approximately $25,000 of capital gains in 1954 and $50,000 of capital gains in 1955. This income together with petitioner's deductions were included in the joint returns for the respective years.

At all times material hereto until the end of 1959 petitioner lived with her husband. At that time she separated from him and went to live in New York City. She had discovered that Mr. Sharwell was engaging in fraudulent activities with the property of their jointly-owned corporation and property which she had inherited from her father. Mr. Sharwell attempted to effect a reconciliation. Petitioner again turned over her records to him or his accountant to have her income included with "his" tax return for the years 1958 and 1959. These returns were filed in March and April of 1960, respectively.

In the following year when the petitioner filed her individual return for 1960, she answered "no" to the question, "Do you owe any Federal tax for the years before 1960?"

The books and records of Mr. Sharwell and the corporation were destroyed by fire sometime prior to the trial in the Tax Court.

The notice of deficiency mailed to petitioner on March 22, 1963, and addressed to "Mr. Sherman S. Sharwell and Mrs. Roslyn Sharwell," contained the following explanations of adjustments:

"EXPLANATION OF ADJUSTMENTS

"Year Ended December 31, 1958

"(a) Your reported income for the year 1958 has been increased by additional taxable income in the amount of $274,384.64.
"(b) It has been determined that the claimed itemized deductions aggregating $2,982.83 are not allowable since you failed to provide substantiation as required.
"(c) It has been determined that the maximum standard deduction of $1,000.00 is allowable in lieu of itemized deductions.

"EXPLANATION OF ADJUSTMENTS

"Year Ended December 31, 1959

"(a) Your reported income for the year 1959 has been increased by additional taxable income in the amount of $234,771.95.
"(b) It has been determined that the claimed itemized deductions aggregating $3,067.62 are not allowable since you failed to provide substantiation as required.
"(c) It has been determined that the maximum standard deduction of $1,000.00 is allowable in lieu of itemized deductions."

Mrs. Sharwell filed a petition in the Tax Court alleging that the Commissioner erred in: (a) determining that the returns for 1958-59 were joint returns of her and her husband; (b) determining the amount of the deficiency alleged to be due; and (c) assessing the deficiency against her even if it were validly chargeable to her husband inasmuch as she was the innocent victim of his fraudulent scheme. She further contended that the notice of deficiency was not sufficiently specific to raise the presumption of correctness that normally attaches to the action of the Commissioner and that the notice of deficiency was not filed within the time required.

The Tax Court, speaking through Judge Tietjens, found that the returns were joint and that the petitioner had failed to rebut the presumption of correctness that attached to the Commissioner's determination. The returns were filed late and it appears from the record that the notice of deficiency was filed within the time provided.

On appeal petitioner raises three questions: (1) Were the 1958-59 income tax returns prepared and filed by Sherman Sharwell joint returns within the meaning of that term under the Internal Revenue Code of 1954? (2) Was the notice of deficiency adequate? and (3) Should a wife be liable for the income has taken fraudulently from their joint-taxes due on money that her husband ly held business without her knowledge or the use of the money for her benefit?

Mrs. Sharwell contends that the returns were not joint because she did not sign them. We think there is no merit in this position. The question of whether a return is joint or not is a factual one. Heim v. Commissioner of Internal Revenue, 251 F.2d 44 (8th Cir.). The signature of the wife is only one factor in determining whether the return is joint. It appears the question is primarily one of intent. Heim v. Commissioner of Internal Revenue, supra, at 46.

This determination being a factual one, this Court may overturn it only if we find that it is clearly erroneous. Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218. There is evidence in the record supporting the conclusion of the Tax Court that Mrs. Sharwell intended to join with her husband in the filing of joint tax returns for 1958 and 1959. She was aware that the returns were being prepared and took an active role in their preparation in that she maintained records of her...

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