Roberts v. C.I.R.
| Decision Date | 14 November 1988 |
| Docket Number | No. 87-4931,87-4931 |
| Citation | 860 F.2d 1235 |
| Parties | -356, 88-2 USTC P 9610 Bobbie J. ROBERTS, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Ben A. Douglass, Douglas, Kressler & Wuester, Fort Worth, Tex., for petitioner-appellant.
William F. Nelson, Chief Counsel, IRS, Janet A. Bradley, Gary R. Allen, Wm. S. Rose, Jr., Jonathan S. Cohen, Asst. Attys. Gen., Tax Div., Washington, D.C., for respondent-appellee.
Appeal from the Decision of the United States Tax Court.
Before WILLIAMS and GARWOOD, Circuit Judges, and NOWLIN, District Judge. *
Bobbie J. Roberts ("Taxpayer") appeals from an adverse decision of the Tax Court. The Tax Court held that Taxpayer knew or should have known of a real estate kickback received by her husband in 1975 and should therefore be taxed on her community property interest in that kickback. The Tax Court also held that Taxpayer did not have reasonable cause for failing to timely file a tax return for the year 1975 and should therefore be liable for an addition to tax penalty. Because we find that the Tax Court applied the correct principles of law to fact findings that were not clearly erroneous, we AFFIRM the Tax Court's decision.
Taxpayer married Charles Morgan ("Morgan") on December 13, 1970, and divorced him on August 17, 1976. In 1975, Morgan was a self-employed real estate broker who maintained an office for his business in the home he shared with Taxpayer, a licensed real estate broker since August 1974. Morgan purchased their house in May of 1974. The house consisted of 3,000 square feet, had four bedrooms and three baths, and was situated along the golf course of the Ridglea Country Club in Fort Worth, Texas. Taxpayer and Morgan purchased approximately $13,000 of furniture for their home in 1974 and 1975. They lived together in that house during the remainder of 1974 through 1975 during which time Morgan paid the costs of maintaining the house, including mortgage payments and real estate taxes. Morgan also furnished Taxpayer with living expenses during this period. Morgan moved out of the house in March of 1976 after his separation from the Taxpayer. Taxpayer remained in the house until her divorce in August of 1976.
In 1975, Taxpayer and Morgan shared a joint checking account at Ridglea State Bank ("Ridglea joint account"). She drove a 1974 Chevrolet Monte Carlo he purchased for her, and traveled with him in late 1975 on a snow-skiing trip to Purgatory, Colorado. Despite having had many of the modern amenities of life during 1975, Taxpayer soon experienced a rather painful change of circumstances in 1976 due in part to Morgan's real estate activities.
The particular real estate transaction which gave rise to the problems experienced by Taxpayer occurred in 1975. During that year, Morgan became a member of Interstate Investors, Inc. ("Interstate"), an investment group which was interested in purchasing a tract of land known as the Singing Hills property ("Singing Hills"). Interstate consisted of Morgan, Larry Ragland ("Ragland"), and other individuals they knew through a church in Fort Worth. In fact, Taxpayer and Morgan attended a Sunday school class taught by Ragland.
Ragland and Morgan had participated in other real estate investments prior to the Singing Hills deal. In those prior transactions, Ragland understood that Morgan would not receive compensation for services he provided in real estate acquisitions until Interstate sold the property. Ragland later discovered, unfortunately, that Morgan may have defrauded Interstate in the Singing Hills acquisition by receiving and accepting an illegal kickback. It is significant that Taxpayer testified she knew about the Singing Hills project and, in fact had visited the property on more than one occasion in 1975 with Ragland and Morgan prior to its purchase.
On August 1, 1975, Interstate purchased Singing Hills. Without the knowledge of the other investors of Interstate, Morgan indirectly received a $268,541.40 payment or kickback in 1975 from the Sellers of Singing Hills. Morgan used $50,000 as part of Interstate's down payment on Singing Hills but deposited the balance of $218,541.40 in the Ridglea joint account. He eventually purchased four certificates of deposit, two of which he co-owned with Ragland. These certificates earned $2,412.83 of interest in 1975, all of which Morgan received. In addition to this interest income, Morgan received net long-term capital gains of $152.00 from the sale of certain property in connection with the Singing Hills transaction. He also received in 1975 his distributive share of ordinary loss of $78,013.00 as a partner in an equipment leasing firm.
During 1975, Taxpayer wrote several checks on the Ridglea joint account. On April 30, 1975, Taxpayer drew two checks: one in the amount of $10,000.00 made payable to "Charles N. Morgan Investment Account" and the other in the amount of $1,000.00 made payable to Morgan. Taxpayer drew two more checks on this same account in 1976, the last one being in April of 1976 after Taxpayer and Morgan had separated. Morgan also wrote checks on this account on June 16, July 8, August 17, and October 6 of 1975 for $900.00, $1,000.00, $700.00, and $1,000.00, respectively. All four checks were made payable to Taxpayer which she deposited in her own separate account at Continental National Bank.
Morgan and Taxpayer did not enjoy the happiest of marriages. Taxpayer testified that she and Morgan periodically separated prior to their final separation in March 1976 because of Morgan's interest in other women. In addition to these problems, Morgan was extremely secretive about the source of funds he provided Taxpayer to operate the community household. In late 1975, after repeatedly being warned by Morgan and realizing herself that they were living beyond their means, Taxpayer discovered that Morgan habitually carried large sums of cash on his person. When she questioned him about the funds, he angrily explained that the money actually belonged to someone else. It was at this time that Taxpayer first became suspicious of Morgan's financial affairs.
Before and after Taxpayer's separation from Morgan, Ragland repeatedly contacted Taxpayer and warned her of his suspicions that Morgan had defrauded the investment group. Since Morgan kept his files in his office at home, Ragland pressured Taxpayer to release Morgan's files to him in order to corroborate Interstate's allegations. Ragland also pressured Taxpayer to relinquish her entire claim and interest in the house and its belongings and threatened to sue her in addition to her husband for his fraudulent acts if she did not cooperate. As a result of these demands, Taxpayer turned Morgan's files over to Ragland for his inspection, and relinquished to him her interest in the homestead, the household property and furniture and certain stock.
After the separation in March of 1976, Taxpayer met her present husband, Larry Roberts ("Roberts"), whom she married in September 1976. At some point in June or July of 1976, Morgan shot at Roberts and attempted to run him off the road because of Robert's relationship with Taxpayer. Morgan also threatened to kill the Taxpayer and her son from a former marriage. These events evidently prompted her to file a divorce petition in June of 1976 in order to terminate her marriage. Taxpayer supplied her divorce attorney with the records and files Morgan kept on various real estate transactions. Taxpayer later retrieved these documents and delivered them to Ragland for his review which led to the discovery of Morgan's receipt of the kickback.
Significantly, Taxpayer expressly alleged in her divorce petition that Morgan might have incurred federal income tax liability, that he had concealed community property, and thus should be ordered to pay such liability. The court entered the divorce decree on August 17, 1976 awarding Taxpayer the 1974 Monte Carlo, certain furniture she owned before the marriage, and all cash in her possession. Although Taxpayer had previously relinquished to Ragland her interest in the household furniture, Ragland eventually permitted her to keep the furniture.
In November 1976, an Internal Revenue Service agent contacted Taxpayer and informed her about her failure to timely file a 1975 income tax return. 1 Upon the agent's advice, Taxpayer filed her own separate return for the 1975 taxable year on November 29, 1976 reporting gross receipts of $3,819 from her own real estate activities with a net profit of $394.00.
On November 28, 1979, the Commissioner of Internal Revenue ("Appellee") issued a statutory notice of deficiency to taxpayer asserting a $59,204.33 deficiency. Appellee determined that Taxpayer was liable for one-half of the following community income:
a. Interest Income $ 12,693.04
b. Commissions and Finder's Fees $137,140.07
c. Capital Gains $ 76.00
Taxpayer, however, was allowed one-half of the following corresponding deductions related to such income:
a. Itemized Deductions $ 4,207.71
b. Ordinary Loss $ 39,006.50
The Appellee also assessed against Taxpayer a $14,801.08 "addition to tax" penalty under 26 U.S.C. Sec. 6651(a) because she had failed to file her 1975 tax return on time. 2
On February 1, 1980, Taxpayer filed a petition in the United States Tax Court challenging the Appellee's imposition of tax liability for one-half of the community income and the addition to tax for the late filing. Taxpayer sought relief under 26 U.S.C. Sec. 66(c) from liability for the community income and argued that she was not liable for the addition to tax penalty under the reasonable cause exception of section 6651(a). The Tax Court filed its Memorandum Findings of Fact and Opinion in August of 1987 finding that Taxpayer knew or had reason to know of Morgan's...
To continue reading
Request your trial
-
Partner v. Comm'r Of Internal Revenue
...proven; reviewed de novo is its determination of “what elements must be present to constitute ‘reasonable cause’ ”. Roberts v. Comm'r, 860 F.2d 1235, 1241 (5th Cir.1988) (citing United States v. Boyle, 469 U.S. 241, 250 n. 8, 105 S.Ct. 687, 83 L.Ed.2d 622 (1985)). The tax court held that, a......
-
United States v. Bittner
...is a question of fact, but what elements must be present to constitute ‘reasonable cause’ is a question of law." Roberts v. Comm'r , 860 F.2d 1235, 1241 (5th Cir. 1988) (citing Boyle , 469 U.S. at 249 n.8, 105 S.Ct. 687 ). While a reasonable-cause defense depends on all pertinent facts and ......
-
Costa v. Commissioner, Docket No. 6652-88.
...seeking relief. All four requirements must be met before relief can be granted. Roberts v. Commissioner [88-2 USTC ¶ 9610], 860 F.2d 1235, 1238 (5th Cir. 1988), affg. a Memorandum Opinion of this Court [Dec. The parties have stipulated that no returns (joint or separate) were filed for or o......
-
American Biomaterials Corp., Matter of
...n. 8, 105 S.Ct. at 692 n. 8; Universal Minerals Inc. v. C.A. Hughes & Co., 669 F.2d 98, 103 (3d Cir.1981). See Roberts v. Commissioner, 860 F.2d 1235, 1241-42 (5th Cir.1988). III. A. Initially we address the government's argument that the record does not contain sufficient evidence to suppo......
-
Treatment of community income for spouses living apart.
...Prior to this clarification, there was a split of authority on the issue in the Tax Court. Bobbie J. Roberts, TC Memo 1987-391, aff'd, 860 F2d 1235 (5th Cir. 1988), implied that the requesting spouse must file a separate return, but later cases did not require such a filing; see Patti Olles......