Aude v. Commissioner
| Decision Date | 21 October 1997 |
| Docket Number | Docket No. 18375-86.,Docket No. 45011-85. |
| Citation | 74 T.C.M. 993 |
| Parties | Sherry P. Aude v. Commissioner. |
| Court | U.S. Tax Court |
Gordon B. Cutler, Los Angeles, Calif., for the petitioner. Glorianne Gooding-Jones, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined the following deficiencies in and additions to petitioner's Federal income taxes:
Additions to Tax
Sec. Sec. Sec
Year Deficiency 6653(a)(1) 6653(a)(2) Sec. 6659 6661
1980 ....................... $28,885 $1,444.25 -- -- --
1981 ....................... 37,414 1,870.70 1 $11,224.20 --
1982 ....................... 57,560 2,878.00 2 -- $5,756.00
1 50% of the interest due on $37,414
2 50% of the interest due on $57,560
After concessions,1 the issue for decision is whether petitioner qualifies for innocent spouse relief under section2 6013(e), for taxable years 1980, 1981, and 1982. We hold that she qualifies for innocent spouse relief.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein. Petitioner resided in Northridge, California, when the petition was filed.
During the years at issue, petitioner was married to Peter F. Aude (Mr. Aude). Petitioner and Mr. Aude were divorced in September of 1983. The Audes filed joint Federal income tax returns for each taxable year at issue.
Petitioner was born on August 10, 1951. In 1969, she graduated from high school with approximately a 2.0 grade point average. After graduating from high school, petitioner worked primarily as a receptionist in the Los Angeles area.
In August of 1969, petitioner married for the first time. She had a son, Michael, in January of 1972. Petitioner divorced in 1973; however, in August of 1974, petitioner and her first husband had a second child, who was later given up for adoption.
In 1975, petitioner worked as a receptionist for the Landsberg Company (Landsberg). There, she met Mr. Aude, who worked as a salesperson for Landsberg. At the time, Mr. Aude was divorced with two children from a prior marriage. In February 1976, petitioner and Mr. Aude, who was then 33 years old, were married. Petitioner and Mr. Aude had two sons: Peter, born in December 1978, and Erik, born in April 1980.
During her marriage to Mr. Aude, petitioner worked as a housewife and mother.3 She had the role of taking care of five children: Michael, Peter, Erik, and Mr. Aude's two sons from his prior marriage (who lived part of the time with petitioner and Mr. Aude).
During the years at issue, petitioner did not buy any jewelry or expensive clothes. She drove a 1980 station wagon. During this period, the Audes took one vacation to Hawaii in December of 1982. Until their divorce, petitioner and Mr. Aude lived in the same house, which they purchased in 1976. They had built an addition to that house in 1978-79.
Throughout their marriage, petitioner and Mr. Aude maintained a joint bank account. Initially, Mr. Aude handled all the finances. In 1978, Mr. Aude gave petitioner a monthly allowance of $3,000 to pay the household bills. This monthly allowance was used to pay Mr. Aude's alimony and child support to his ex-wife, household bills, food, and medical expenditures. While the allowances at times decreased during the years at issue, they never increased. Using her monthly allowance, petitioner wrote checks out of the joint bank account, and recorded the checks in her register; however, the Audes maintained separate check registers. Petitioner never saw the checks Mr. Aude wrote or his check register. Petitioner never examined the bank statements because it was Mr. Aude's job to review the bank statements.
Petitioner was uninvolved in the business affairs of Mr. Aude. Occasionally, petitioner would accompany Mr. Aude to business meetings, but after introductions she would stay in the lobby or in the car during the actual meeting. She was unaware of Mr. Aude's salary and his investment income. If petitioner questioned Mr. Aude about the financial affairs, Mr. Aude would respond that it was his money, and therefore it was not her concern.
In late 1979 or early 1980, Mr. Aude met with Mr. Saranni, a sales representative, to discuss a potential investment in Magnum Oil and Gas (Magnum), a limited partnership. Magnum was organized to acquire and develop oil and gas properties. While the record is unclear regarding this meeting, infra, we determine at a minimum that this meeting was attended by Mr. Aude, Mr. Saranni, petitioner, and Mr. Gruys, the Audes' certified public accountant and attorney. After the meeting, Mr. Gruys discussed the investment with Mr. Aude and petitioner. In this discussion, Mr. Gruys did not tell the Audes that it was a sham investment, nor did he advise the Audes of the audit risk. He recommended that the Audes not purchase an interest in Magnum because it was "an inappropriate investment."4
In July 1980, Mr. Aude purchased 2.3 units in Magnum for $86,250.5 Only Mr. Aude executed the investment papers and he alone made the required capital contribution payments. At a later date, petitioner discovered that Mr. Aude invested in Magnum, but Mr. Aude did not disclose the tax shelter nature of the investment to petitioner. She never saw the investment papers concerning Magnum, and she was unaware of Mr. Aude's capital contribution in Magnum.
For the years at issue, Mr. Gruys prepared the Audes' Federal income tax returns. He only occasionally talked with petitioner, generally around the tax preparation time. Instead, he generally saw Mr. Aude. Petitioner's main involvement in completing the returns was to compile a list of household expenditures for Mr. Gruys. She would accompany her husband to deliver the list to Mr. Gruys. After preparation, Mr. Aude would present the returns, folded to the signature page, for petitioner's signature. At these times, both Mr. Aude and Mr. Gruys had already signed the return. Prior to signing the returns, petitioner did not review them.
In regard to the Magnum investment, Mr. Gruys never reviewed any papers regarding the investment. In preparation of the tax returns for the years at issue, Mr. Gruys relied on the Schedules K-1 prepared by Magnum. In advising the Audes, Mr. Gruys did speak with Mr. Aude in passing regarding the validity of the deductions for the investment, but he did not talk with petitioner about the deduction.
The joint returns for 1980, 1981, and 1982, as originally filed, reflect income, Magnum deductions, adjusted gross income, itemized deductions, and taxable income as follows:
Income
from Wages, Magnum Adjusted Itemized Taxable
Year Interest Deduction Gross Income Deductions Income
1980 ........................ $137,219 $ 99,015 $38,204 $44,311 (6,107)
1981 ........................ 145,168 105,103 40,065 44,962 (11,897)
1982 ........................ 124,958 114,731 10,227 39,553 (36,326)
Respondent disallowed in part the Magnum loss deductions,6 medical and dental expenses, and interest expense deductions. The understatement for the years at issue was primarily created by the disallowance of the Magnum loss deduction.
Petitioner and Mr. Aude had a rocky marriage, filled with arguments, separations, reconciliations, and professional therapy. Prior to and during the years at issue, Mr. Aude physically abused petitioner. The abuse resulted in petitioner's sustaining cracked ribs, bruised lungs, and concussions, which at times required medical treatment and hospitalization. As a result of the abuse, petitioner called the police several times, and also obtained a restraining order against Mr. Aude. A pattern of violence developed in their marriage, especially when petitioner questioned Mr. Aude's decisions or behavior. As a result of this pattern of abuse, petitioner avoided questioning Mr. Aude on any issue.
In December 1979, petitioner, prompted by Mr. Aude's physical abuse, filed for a divorce. The action was later dismissed in early 1983. During this period, petitioner and Mr. Aude were sometimes separated, and they attended counseling for a period of time.
In March 1983, petitioner filed a second divorce action. As with the first divorce action, this action was based on Mr. Aude's physical abuse. The divorce was granted in September of 1983. Pursuant to the divorce proceedings, petitioner received the following distribution of community assets: personal effects, the family home, household furniture, a 1980 station wagon, and an interest in Mr. Aude's profit sharing fund. Tax refunds were not apportioned to petitioner. In the divorce settlement, Mr. Aude received the Magnum investment.
Mr. Aude was ordered to pay alimony to petitioner for 6 years. The amount of alimony ranged from $3,000 per month in 1983 to $2,000 per month in 1986. Following the divorce, petitioner was granted custody of Peter and Erik. Due to an accident in 1989, Erik sustained severe injuries, which require substantial medical care and attention. This has prevented petitioner from working. Currently, petitioner has full custody of Erik, while Mr. Aude has full custody of Peter. Mr. Aude was also ordered to pay child support, which ranged from $1,000 per month in 1983 to $1,500 per month in 1986 to $2,650 per month in 1989 to $1,600 per month currently. At times, Mr. Aude was in arrears in the alimony and child support payments.
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