780 F.2d 561 (6th Cir. 1986), 85-1087, Shea v. C.I.R.

Docket Nº:85-1087.
Citation:780 F.2d 561
Party Name:Sally A. SHEA, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Case Date:January 08, 1986
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 561

780 F.2d 561 (6th Cir. 1986)

Sally A. SHEA, Petitioner-Appellant,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 85-1087.

United States Court of Appeals, Sixth Circuit

January 8, 1986

Argued Nov. 13, 1985.

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[Copyrighted Material Omitted]

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William F. Snyder (argued), Robert A. Lesco, Glenn Waggoner, Marshman, Snyder & Corrigan, Cleveland, Ohio, for petitioner-appellant.

Michael L. Paup, Chief, Appellate Section, Glenn L. Archer, Jr., Asst. Atty. Gen., Tax Div., Dept. of Justice, Carleton D. Powell, William P. Wang (argued), Washington, D.C., for respondent-appellee.

Before MARTIN, CONTIE and WELLFORD, Circuit Judges.

CONTIE, Circuit Judge.

Sally Shea appeals from the Tax Court's decision holding her liable for tax deficiencies and additions for the tax years 1976 and 1977. On June 20, 1984 the Tax Court held that petitioner did not qualify as an "innocent spouse" under 26 U.S.C. Sec. 6013(e)(1) for either tax year, and that she was liable for the 1977 tax deficiencies even though she had not personally signed the tax return.

I.

Sally Shea was married to Kenneth Shea from 1952 until his death on December 22, 1978. For every year preceding 1976, and 1977, and the year following Kenneth Shea's death, Sally Shea had filed joint tax returns. In 1976, both Kennth and Sally Shea signed the tax return. This return was prepared by their attorney and tax preparer, James Hogel. Kenneth Shea supplied the information to Hogle, and both Kenneth and Sally were present while the tax return documents were prepared.

In 1977, neither party personally signed the tax return. Instead, Kenneth and Sally's names had been signed by James Hogle who testifed that he had been authorized to sign the return by one of the parties, although he could not recall which one. Petitioner was not present when this return was being prepared, and all the information for this return had been supplied by Kenneth. Petitioner testified that she did not see the 1977 tax return until January 1983. No power of attorney was attached to the tax return and Sally Shea denies having given Hogle permission to sign for her although she had given her husband permission to sign the joint return.

Prior to July 1976, Kenneth Shea had operated his manufacturer's representative business as a sole proprietorship. In 1976, he incorporated this business under the name Shea Sales Company, Inc. (Shea Sales). Checks for Shea Sales' checking account were imprinted with both Kenneth's and Sally's names. Sally Shea was the secretary-treasurer and a shareholder of Shea Sales. She was authorized to write checks on, and make deposits to, this account and did so at Kenneth's direction, although Kenneth was the only person to examine the corporation's financial statements. She also answered the phone and took messages.

During 1976, Shea Sales issued checks drawn to Kenneth Shea, Sally Shea and "cash" in the amount of $22,501.27, and to payees for payment of the Sheas' personal expenses in the total of $23,880.93. In 1977, such amounts equaled $29,509.00 and $34,927.58 respectively. Sally Shea was unable to establish these checks were written for business purposes.

Petitioner also had a personal checking account in her name. During 1976 and 1977, deposits of $94,622.99 and $47,032.62, respectively, were made to her account. Kenneth Shea used her account regularly, signing Sally's name. The bank notified Sally of his use, requested his use cease and Sally made some unsuccessful efforts to have Kenneth discontinue this practice. When bank statements for her account arrived, Kenneth examined them rather than Sally.

Petitioner has a college education. In 1976, her daughter was married, her son graduated from high school, her father had a 75th birthday, an addition to the house was built, and her husband began drinking more heavily. When the 1977 tax return was prepared, petitioner was staying with her mother because her father had suffered from a massive cerebral hemorrhage from which he later died. Kenneth Shea died in 1978 from cirrhosis of the liver brought on by his alcoholism.

The deficiencies claimed by the Commissioner relate to amounts paid by manufacturers which Shea represented as well as the amounts paid from the Shea Sales'

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checking account to Kenneth, Shea, and "cash" for personal expenses. The totals were $28,941.70 for 1976 and $5,729.50 for 1977. Additions under Sec. 6653(a) 1 were calculated pursuant to the statute, totaling $1,447.09 for 1976 and $286.48 for 1977. On this appeal, petitioner does not challenge the amount of these deficiencies or additions, but only whether she should be liable to pay them. First, she argues that she qualifies as an "innocent spouse" under 26 U.S.C. Sec. 6013(e)(1) for both years. In the alternative, appellant asserts that she cannot be held liable for the 1977 tax deficiencies because neither she nor her husband signed the return and she never adopted it as her own.

II.

When a joint return is filed, the parties are jointly and severally liable for the amount of tax due. 26 U.S.C. Sec. 6013(d)(3). One exception to this is the "innocent spouse" provision. 26 U.S.C. Sec. 6013(e)(1). This provision was adopted to prevent hardships which resulted when one spouse did not report income, thereby leaving the "innocent spouse" to pay the deficiencies. Sanders v. United States, 509 F.2d 162 (5th Cir.1975). In 1984, subsequent to the Tax Court's decision in this case, the innocent spouse provision was amended.

The provision which was in effect when the Tax Court decided this case reads:

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

(A) a joint return has been made...

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