Banks v. Banks

• Decision Date: 01 December 1994
• Docket Number: No. 92-CA-01133,92-CA-01133
• Citation: 648 So.2d 1116
• Parties: Althea Grayson BANKS v. Earle Stewart BANKS, Sr.
• Court: Mississippi Supreme Court

Page 1116

648 So.2d 1116

Althea Grayson BANKS v. Earle Stewart BANKS, Sr.

No. 92-CA-01133.

Supreme Court of Mississippi.

Dec. 1, 1994.

As Modified on Denial of Rehearing Feb. 2, 1995.

Deborah McDonald, Natchez, Melvin Wade Granberry, St. Louis, MO, for appellant.

Halbert E. Dockins, Jr., Thomas J. Lowe, Jr., Jackson, for appellee.

En Banc.

SMITH, Justice, for the Court:

This is an appeal from the Chancery Court of the First Judicial District of Hinds County. Althea Grayson Banks was found in contempt of court for failing to execute joint tax returns with her ex-husband and held liable for $32,323.00, the amount of additional taxes which were alleged to have been caused by her failure to sign the joint tax returns.

Mrs. Banks appeals from the judgment of the lower court and raises the following issues:

I. WHETHER THE SPECIAL MASTER ERRED IN CONSTRUING A PROPERTY SETTLEMENT AGREEMENT ENTERED INTO BY THE PARTIES IN A DIVORCE PROCEEDING TO REQUIRE A WIFE TO SIGN JOINT TAX RETURNS WHERE THE PARTIES ONLY AGREED TO "COOPERATE WITH EACH OTHER IN THE FILING OF ALL TAX RETURNS."

II. WHETHER THE SPECIAL MASTER ERRED IN IMPOSING A JUDGMENT AGAINST MRS. BANKS FOR TAX LIABILITY BASED UPON THE DIFFERENCE BETWEEN WHAT MR. BANKS WOULD HAVE OWED HAD HE FILED A JOINT RETURN WITH MRS. BANKS INSTEAD OF A MARRIED FILING SEPARATELY RETURN, WHERE SHE NEVER HAD AN OPPORTUNITY TO BE A PARTY TO THE TAX COURT PROCEEDINGS ASSESSING MR. BANKS' TAX LIABILITY.

Finding that the lower court erred, this Court reverses the judgment against Mrs. Banks.

THE FACTS

The parties were divorced on May 25, 1990, on the grounds of irreconcilable differences. The central issue in the case sub judice is the parties interpretation of a clause of the settlement agreement which was prepared by Mr. Banks' attorney. The property settlement agreement included the following paragraph:

The parties agree that the Husband is entitled to and shall claim the children as his exemptions for state and federal income tax purposes until the Wife's income reaches Eighteen Thousand Dollars ($18,000.00) annually, so long as he remains current with his child support payments. Upon such happening, the Wife shall be entitled to claim Kimberly Celeste Banks as her exemption for state and federal income tax purposes, and the Husband shall be entitled to claim Earle Stewart Banks, Jr. as his exemption for state and federal income tax purposes. The parties further agree to cooperate with each other At the time of the Earle and Althea Banks' divorce, they had not filed income tax returns for the years 1982 through 1989. First, the IRS pursued Mrs. Banks for back taxes due from her failure to file tax returns. Mrs. Banks settled her own tax liability with the IRS for 1983 and 1984, the only years she had separate income.

in the filing of all tax returns which may now be due through the tax year 1989.

When the Internal Revenue Service discovered that Mr. Banks had not filed tax returns for the years 1982 through 1986 and brought him into United States Tax Court, Mr. Banks entered into an agreement to pay the taxes for those years. It was determined that Mr. Banks could substantially reduce his tax liability if he could get his ex-wife to sign the returns as joint tax returns. At the time of Mr. Banks' agreement with the IRS on February 11, 1992, he had thirty days in which to secure the signature of Mrs. Banks on the tax returns.

When Mrs. Banks refused to voluntarily sign, Mr. Banks filed a "Motion to Find Respondent in Contempt and for Affirmative Relief" in Hinds County Chancery Court on February 26, 1992. Mr. Banks alleged that he had "made numerous attempts to obtain the respondent's cooperation regarding the execution of joint tax returns for the taxable years 1982-1989, yet the respondent has consistently and steadfastly refused to execute the returns." Mr. Banks sought to have Mrs. Banks found in contempt for her refusal to honor the terms of the settlement agreement and to compel her to sign.

On March 4, 1992, Chancellor Patricia Wise appointed Bobby Sneed as Special Master to consider the matter, and a hearing was scheduled for March 5, 1992. The hearing was subsequently postponed until March 9, 1992, due to a conflict of Mrs. Bank's counsel.

At the March 9 hearing, Mr. Banks testified that he contacted his ex-wife on February 7 at St. Richard's Junior High School where his daughter and son are in school and asked her to sign the joint tax returns. This was the first time he had talked to her about signing a joint return since their divorce in 1990. She told him at that time that she had already been called in by the IRS herself and had settled her liability. Mr. Banks testified that he offered to reimburse her for the taxes she had already paid if she would agree to sign and she said that she "would have to think about it." Mr. Banks said he talked to her several times thereafter.

Mr. Banks last talked to Mrs. Banks about signing the tax returns on February 18. At that time the tax returns were in rough draft and he did not have any documents when he talked to her. The tax returns were signed by the CPA on February 21 and were not sent to Mrs. Banks' attorney until March 5, 1992.

On February 26, 1992, Mr. Banks' attorney sent a letter offering to reimburse Mrs. Banks for the taxes she had already paid and asking for receipts showing the tax payments so these could be included in the tax returns.

When asked if Mrs. Banks had signed a joint tax return during their marriage, Mr. Banks could not remember. He stated that Lamar Beacham had prepared the tax returns and normally would sign Mr. Banks' name and Mrs. Banks' name "because it was always late." Mr. Banks testified that Mr. Beacham had died and had not finished the tax returns for the years in question.

Harris H. Barnes, III, Mr. Banks' tax attorney, testified he had been retained to represent Mr. Banks in tax court only thirteen days before the tax deficiency case was to go to trial. Barnes was able to settle the case before trial. The decision order was filed based on "married filing separately" status because it was not certain that Mrs. Banks would sign a joint return, but a written agreement was obtained from the IRS that if within thirty days following the decision order Mrs. Banks would agree to file and sign joint returns, that the decision order would be amended to reflect married filing jointly.

Barnes testified that he and the CPA's had "not done the interest computations or the penalty computations, just the pure tax." He stated that the difference in taxes between married filing singly and married filing jointly was "approximately $11,400.00 more in tax" and "when you add the interest and then When asked about Mrs. Banks' potential criminal liability or civil fraud liability, Barnes testified that her criminal liability would be "zip." "Her civil exposure is the same as any other jointly held or jointly filed return. To the extent that she files a joint return, she is in fact liable, just as Mr. Banks would be jointly and severally for the return."

add an additional fifty percent of the interest and all of the other penalties, the tax, interest and penalties would then go by half again more, the bottom line being in excess of $20,000.00 extra."

Barnes testified that Mr. Banks' tax liability would be the same if Mrs. Banks provided receipts for the taxes she had paid, but that the taxes would be abated to Mrs. Banks if the returns were filed as married filing jointly.

When asked how the IRS would respond to Mr. Banks' agreement to hold Mrs. Banks harmless or indemnify her, Barnes said, "Well, you know as well as I, the IRS is not bound by any decision the parties make."

At the hearing Mrs. Banks testified as to her understanding of the disputed portion of the property settlement agreement: "My understanding of that sentence meant to me that I would provide Earle with documents on children, maybe their medicals, or any documents he need to file his return." She stated that she would not have agreed to execution of documents as part of the agreement. She said that he never asked for any tax information from her and that she never signed a joint tax return with Mr. Banks during their entire marriage. "Not only did I not sign, I have never seen joint tax returns during the whole marriage." Further, she had never known his income or been involved in any way in filing or filling out tax returns with Mr. Banks.

Mrs. Banks testified that she was notified by the IRS that she had tax problems in late February or early March, 1991. The IRS filed substituted tax returns for her for 1983 and 1984.

Mrs. Banks said that Mr. Banks approached her about signing joint tax returns on February 7 and that she told him, "Well, I need to talk to someone first." Mrs. Banks then talked to her attorney and to someone with the IRS. Her reaction to the conversation with the IRS representative was "scary" and "frightened" and affected her decision not to sign a joint return. When Mr. Banks called her, she told him that "based on talking to some experts about the situation, I had decided that it would be liable [sic] for me to sign a joint return when I have already been cleared on the years of '83, '84." According to her, Mr. Banks never mentioned any specific years for which he needed her to sign a joint tax return.

As a result of the hearing, the Special Master found that Mrs. Banks should sign the joint tax returns contingent on Mr. Banks having certified funds for the taxes owed for the years 1982 through 1986 and an indemnification agreement being executed by Mr. Banks. The Special Master found that there was no willful violation on Mrs. Banks' part and took under advisement whether she would be held in contempt.

On May 8, 1992, the Special Master considered Mr. Banks' Motion to Alter or Amend Special Master's Report and Mrs. Banks' motion to stay the proceedings. The motion to stay was denied....