Clevenger v. C.I.R., 86-3655
| Decision Date | 28 August 1987 |
| Docket Number | No. 86-3655,86-3655 |
| Citation | 826 F.2d 1379 |
| Parties | -5541, 87-2 USTC P 9489 Clifton CLEVENGER, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Donald William Geerhart, Robert D. Grossman, Jr. (Grossman & Flask, P.C., Washington, D.C., on brief), for petitioner-appellant.
Teresa Ellen McLaughlin, Tax Div., Dept. of Justice (Roger M. Olsen, Asst. Atty. Gen., Michael L. Paup, Gilbert S. Rothenberg, Tax Div., Dept. of Justice, Washington, D.C., on brief), for respondent-appellee.
Before HALL, SPROUSE and WILKINSON, Circuit Judges.
Clifton L. Clevenger appeals from the decision of the Tax Court denying him relief under the "innocent spouse" provision of the Internal Revenue Code. 26 U.S.C. Sec. 6013(e). The court held him jointly liable with his wife Catherine for personal income tax deficiencies totaling $189,199 for the tax years 1973 through 1977. We affirm.
During the relevant years, Clifton and Catherine Clevenger each owned a fifty-percent interest in two construction contracting corporations, Clevenger Corporation and C & C Builders, Inc. Clifton was President and Catherine Secretary-Treasurer of both corporations. As president, Clifton oversaw all construction projects and submitted bids and estimates on projects. Clifton also sorted the company mail, but routed all bills and invoices directly to Catherine without examining them. Catherine was responsible for all corporate financial and accounting matters. The accountant (Catherine's father) prepared the corporate tax returns each year based solely on work papers she provided. Catherine also solely managed the family's finances and helped the accountant prepare their joint personal tax returns each year.
In the early 1970s, the Clevengers started to have marital problems. By 1973, the problems had accelerated to the point that they avoided each other by working opposite hours. In 1975, Catherine moved out of the "marital" home on Tucker Lane, Sandy Spring, Maryland, which she and Clifton owned as tenants by the entirety. They also owned a farm on Brown Bridge Road, Fulton, Maryland, where their son lived, and property in Highland, Maryland. Clifton and Catherine divorced in 1982. As part of the property settlement, Clifton received the Tucker Lane property, Catherine the Highland property. They conveyed the Brown Bridge property to their son. Finally, Catherine conveyed her stock in the corporations back to the corporations, although under the terms of the settlement agreement she was to have conveyed it to Clifton directly.
Beginning in 1973, the corporations made substantial improvements to the three properties. Clifton opened job sheets on the Tucker Lane and Brown Bridge properties. Improvements to the Tucker Lane property in 1973 and maintenance services provided throughout the relevant years totalled approximately $45,000. Construction costs on the Brown Bridge property in 1974 exceeded Clifton's $44,500 estimate by $15,000 to $20,000 after a barn, fences, outbuildings and a pond were constructed in addition to a house. Clifton was unaware of the additional costs until October 1977 when he learned of the barn. In 1975, Catherine opened a job sheet on the Highland property with an estimate of $40,000 for the construction of a house. The construction costs actually exceeded $200,000 due to an upgrade in the design of the house and the addition of a barn and a pool. Clifton did not direct the construction at Highland, which was completed in 1977, and was unaware of the actual costs until February 1980.
These improvements form the basis for the tax deficiencies assessed against the Clevengers. Clifton and Catherine never paid the corporations for the construction and services at their property. They also never reported the cost of the improvements as income (as constructive dividends) on their joint personal income tax returns. 1 In 1980, the Commissioner of Internal Revenue mailed Clifton and Catherine notices of deficiency, claiming that the expenses incurred by the corporations in improving the properties constituted constructive dividends. The Commissioner assessed "additions to tax" because he determined the deficiencies were due to fraud. 2 26 U.S.C. Sec. 6653(b).
Clifton and Catherine separately petitioned the Tax Court for review of the Commissioner's determination and assessments. The Tax Court ruled that the construction expenses constituted constructive dividends that should have been included in their joint personal income tax returns. It determined, however, that Clifton should not be liable for the fraud penalties, 3 but denied his further claim that he should be relieved of liability on the deficiencies under the innocent spouse provision. Clifton appeals only the Tax Court's holding that he did not establish that he qualified as an "innocent spouse."
Section 6013(e) provides in pertinent part:
then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such substantial understatement.
26 U.S.C. Sec. 6013(e)(1). The taxpayer claiming relief as an "innocent spouse" bears the burden of proving that each subsection of Sec. 6013(e)(1) is satisfied. Ratana v. Commissioner, 662 F.2d 220, 224 (4th Cir.1981); Shea v. Commissioner, 780 F.2d 561, 565 (6th Cir.1986). The determination of whether the taxpayer has met the conditions for relief is a question of fact and will be upheld unless clearly erroneous. Ratana, 662 F.2d at 224; Shea, 780 F.2d at 565. In this case, the Tax Court found that Clifton satisfied the requirements of subsections ...
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