Costa v. Commissioner, Docket No. 6652-88.
| Decision Date | 31 October 1990 |
| Docket Number | Docket No. 6652-88. |
| Parties | Sandra M. Costa v. Commissioner. |
| Court | U.S. Tax Court |
John E. Lahart, 790 Mission Ave., San Rafael, Calif., for the petitioner. James W. Clark, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioner's Federal income tax as follows:
Additions to Tax
----------------------------------------------------
Year Deficiency Sec. 66511 Sec. 6653(a)2 Sec. 6654 Sec. 6661
1984 ................. $ 80,972.00 $17,993.00 $4,049.00 $4,383.00 $20,243.00
1986 ................. $195,682.00 $48,921.00 $9,784.00 $9,469.00 48,921.00
After concessions,3 five issues remain for our consideration. Three of the issues concern the tax liability and two concern the admissibility of evidence. As to the tax liability we must consider: (1) Whether petitioner had unreported community property income in 1984; (2) whether the relief provisions of section 66(a) or (c) are applicable; and (3) whether petitioner is liable for additions to tax in 1984 under sections 6651(a)(1), 6653(a), 6654, and 6661. As to the evidentiary matters, we must also consider: (1) Whether the remainder of an otherwise inadmissible hearsay document is admissible under Federal Rules of evidence (Fed. R. Evid.) 106, where portions of the document have been admitted into evidence under an exception to the Hearsay Rule or for purposes of impeachment; and (2) whether prior recorded testimony from an unrelated proceeding is admissible pursuant to Fed. R. Evid. 801(d)(1).
The stipulation of facts and the exhibits attached thereto are incorporated by this reference.
Petitioner resided in Anselmo, California, at the time the petition in this case was filed. She left high school at the age of 17 and married Douglas Costa (sometimes referred to as Mr. Costa) in the 1960's. At the time of her marriage, petitioner was pregnant with the Costas' only child, Kurt Costa. Initially, Douglas Costa worked in construction for Kurt Leswing. Eventually, he acquired his contractor's license and was employed by Kurt Leswing in the business of purchasing, remodeling, and selling real estate properties. Mr. Costa also ran his own business, the Costa Construction Company.
In the course of their business relationship, Douglas Costa entered into several partnerships with Kurt Leswing for the purchase and development of real estate. On occasion, Mr. Costa invested in these ventures on behalf of himself and petitioner and both he and petitioner were partners in some of these joint ventures.
In the early 1970's, the Costas purchased and remodeled a residence at 454 Scenic Road in Fairfax, California (Scenic Road). At one point, the home contained office space for the Costa Construction Company.
Throughout their marriage, the couple had a history of separating and reconciling. In 1981, Douglas Costa was involved in a motorcycle accident. The accident caused permanent leg injury and left Mr. Costa with a severe limp which periodically required him to use a cane. As a result of marital problems, which were compounded by this accident, petitioner moved to a separate residence beginning early in 1982. Mr. Costa also left the Scenic Road home during 1982 and resided with a girlfriend. At some point thereafter, the couple consulted an attorney regarding a legal separation, but a formal termination or separation was never obtained. At the time of trial in this case, Sandra Costa was still legally married to Douglas Costa.
Sometime in 1983, petitioner resumed her residence at Scenic Road. She continued to live there with her son Kurt Costa throughout 1984. In 1984, Douglas Costa visited Scenic Road on an intermittent basis. Although Mr. Costa traveled a great deal during this period, he visited Scenic road on several occasions. Mr. Costa also utilized the Scenic Road address for purposes of receiving mail and he kept documents there. He also received telephone messages and kept clothes at Scenic Road. Mr. Costa kept a key to the residence and came and went at his convenience. Occasionally he used petitioner's car. Although Mr. Costa had access to the Scenic Road residence and spent some time with petitioner, she did not acquire firsthand knowledge of Mr. Costa's activities outside of the residence, including any business activity.
During 1984, Mr. Costa made the house payments, and paid petitioner approximately $700 to $800 a month in support and for household expenses. This money was usually paid to her in cash or by cashier's check. Mr. Costa generally took care of all bills received at the Scenic Road address. Based upon a December 7, 1984, warrant petitioner's residence was searched and evidence of several joint bank accounts was discovered. There is no indication that these accounts had any activity during the 1984 taxable year or that respondent relied upon them in connection with the 1984 reconstruction of income.
During January 1983, petitioner and Mr. Costa jointly signed a promissory note for $30,000. In January 1984, Douglas Costa purchased a 1984 Mercedes Benz for $60,742. The car was registered and titled in the names of both Sandra and Douglas Costa and all purchase documents listed the Scenic Road address. Mr. Costa paid cash for the automobile using cashier's checks, all of which were in amounts less than $10,000. Petitioner was not aware that the automobile was titled in her and her husband's names nor was she aware of the method of payment. Petitioner did not use this automobile and it was treated as belonging solely to Douglas Costa.
In April 1984, Douglas Costa made two $9,000 payments, also by cashier's check, to the Internal Revenue Service, which were posted as estimated tax payments to the joint account of Douglas and Sandra Costa for the year ended December 31, 1984. Petitioner was also aware that in 1984, Mr. Costa invested $25,000 in a joint venture with the Leswings in a business called "Mr. Chips."
In October 1982, petitioner and Douglas Costa received $223,882.88 representing a portion of the proceeds from the sale of certain joint venture realty. Petitioner had requested her husband to invest her share of these proceeds on her behalf. In September 1984, Sandra Costa obtained $5,000 from Douglas Costa and loaned it to William Rowe. The $5,000 was part of petitioner's share of the proceeds from the sale of this property.
Despite their marital differences, petitioner also occasionally traveled with Douglas Costa for vacation trips. Together they made trips to Miami and Mexico, some as recent as 1985 and 1986. In 1985, the couple took a 7-day trip to Hawaii where they shared a hotel room. Douglas Costa also offered petitioner a choice of vacations to places like Hawaii, the Bahamas, and South America as birthday and/or Christmas gifts in 1982 or 1983. It is not clear, however, whether petitioner ever took advantage of this offer. In the fall of 1984, the Costas were booked on a flight to Paris. As petitioner was without other sources of income, trips would have been paid for by Mr. Costa. Occasionally, petitioner accompanied Mr. Costa on trips to Reno or Lake Tahoe, where Mr. Costa gambled. On those occasions she refused to gamble at the same table with Mr. Costa because she "usually got hit" every time he lost.
On December 5, 1984, Douglas Costa left his car at the Scenic Road residence and borrowed Mrs. Costa's car for an unspecified purpose. The Mercedes was parked in front of the house with Mr. Costa's laundered clothes hanging inside. On the evening of the same day, Kurt Costa borrowed his father's car to meet Kurt's business associate at the San Francisco Airport. This was the only occasion on which Kurt drove the Mercedes without permission from or without being accompanied by his father.
Later that night, petitioner was informed that Kurt Costa had been arrested while driving his father's car and that the car contained illegal drugs. Petitioner was also informed that at the time of Kurt's arrest the Mercedes contained narcotics with an estimated street value of $61,400, currency in the amount of $134,850, and several weapons and ammunition. Also present in the car at the time of the arrest were dry-cleaned clothes and several canes belonging to Douglas Costa. The police also found a fingerprint on the narcotics material in the car at the time of Kurt's arrest which they later identified as that of Douglas Costa. Since the car belonged to Douglas Costa, petitioner suspected that the money and drugs in the car were his also.
Subsequent to his arrest, Kurt Costa was charged with narcotics and traffic violations. He was tried thereon and later acquitted on the narcotics charges by the State of California. As a result of the arrest, the residence at 454 Scenic Road was searched by officers of the San Francisco Police Department on December 7, 1984. No drugs were found in the house, but the search turned up records (which did not concern illegal drugs) belonging to Douglas Costa individually and Douglas and Sandra Costa jointly. Among the documents found in the house were cash credit and cash deposit receipts in Douglas Costa's name from the Hotel King Kamehameha and Caesars Tahoe gambling resorts, California vehicle registration and ownership certificates, joint account checkbooks, and a copy of the promissory note executed between Sandra Costa and William Rowe.
About 18 months after Kurt's arrest, in June 1986, Douglas Costa entered into transactions to purchase marijuana and to sell cocaine to Larry Lamberson. Mr. Lamberson was a Drug Enforcement Agency (DEA) agent operating undercover out of Austin, Texas. He had been with the DEA for 16 years.
In the course of their transactions, Douglas Costa informed Agent Lamberson that he had been involved in narcotics smuggling for...
To continue reading
Request your trial
- Mark IV Pictures, Inc. v. Commissioner, Docket No. 7447-87.
-
McGee v. Commissioner
...activity and not with respect to knowledge of specific income items (expenditures) listed in the notice of deficiency. * * * [60 T.C.M. 1178, 1191, 59 P-H Memo T.C. par. 90,572, at Consistent with this proposition, we have repeatedly denied relief under section 66(c) in cases where the taxp......