Greer v. C.I.R.

• Decision Date: 17 February 2010
• Docket Number: No. 09-1420.,09-1420.
• Citation: 595 F.3d 338
• Parties: Winnie L. GREER, Petitioner-Appellant, v. COMMISSIONER of INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

595 F.3d 338

Winnie L. GREER, Petitioner-Appellant, v. COMMISSIONER of INTERNAL REVENUE, Respondent-Appellee.

No. 09-1420.

United States Court of Appeals, Sixth Circuit.

Argued: January 20, 2010.

Decided and Filed: February 17, 2010.

ARGUED:

Kenton L. Ball, Slone & Benton PSC, Lexington, Kentucky, for Appellant. Kenneth W. Rosenberg, United States Department Of Justice, Washington, D.C., for Appellee.

ON BRIEF:

Kenton L. Ball, Slone & Benton PSC, Lexington, Kentucky, for Appellant. Kenneth W. Rosenberg, Jonathan S. Cohen, United States Department of Justice, Washington, D.C., for Appellee.

Before: SILER, MOORE, and CLAY, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Petitioner Winnie L. Greer ("Mrs. Greer") appeals a judgment of the U.S. Tax Court finding her ineligible for relief from joint and several liability for federal income tax deficiencies and additions to tax arising from disallowed investment credits claimed on her 1982 tax return and carryback refunds claimed for the previous three years. Mrs. Greer sought relief based on the tax code's innocent-spouse provision, 26 U.S.C. § 6015(b), and equitable-relief provision, § 6015(f). The Tax Court denied innocent-spouse relief because Mrs. Greer failed to discharge her duty to inquire into the benefits reflected in her and her husband's joint tax filings. The Tax Court denied equitable relief largely on the same basis. Because we cannot say that the Tax Court clearly erred or abused its discretion, we AFFIRM.

I. BACKGROUND

The Tax Court set forth the relevant facts, which the parties do not dispute:

At the time the petition was filed, petitioner resided in Kentucky.

Petitioner graduated from high school in Floyd County, Kentucky, in 1965. She then attended the University of Kentucky, for 2 years and transferred to Louisiana State University from where she graduated with a bachelor of arts degree in music in 1969. Petitioner also received a master's degree in music education from Marshall University in 1973. Petitioner did not pursue studies in economics, finance, or accounting in her formal education.

Petitioner married Daniel C. Greer [("Mr. Greer")] in 1967, and they remain married. Petitioner and Mr. Greer have two daughters, born in 1974 and in 1977. Mr. Greer is a licensed chemical engineer and was employed by Ashland Oil Co., Inc., from 1969 through July 1993.

From September 1969 through May 1972 petitioner was employed as a high school music teacher. After that she pursued graduate studies and raised her daughters. From 1975 to 1985 she acted as a part-time choir director at the Episcopal church where she and Mr Greer became members sometime in 1982 and 1983.

In 1979 petitioner began a photography business. She specialized in wedding and portrait photography. She opened her first photography studio in late 1979 in the family home. Improvements were made to the home in 1982, and the structure remained petitioner's photography studio even after petitioner and her family moved their residence in 1986.

Throughout the years of her marriage up to and including the years in issue, petitioner relied upon Mr. Greer to manage their financial affairs. Mr. Greer did not conceal any financial activities from petitioner or mislead her with respect to those activities. However, he was the primary decisionmaker, and she relied upon him to direct their investments and make decisions regarding their finances and taxes.

In 1979 Mr. Greer and petitioner's father founded G & L Communications, Inc. (G & L), a closely held cable television business that operated in Boyd and Greenup Counties of Kentucky. G & L was taxed as an S corporation until the sale of its assets in November 1982. Petitioner and Mr. Greer each owned 61 shares of G & L stock. Petitioner was not active in G & L's management, nor was she an employee of G & L. In 1982 petitioner and Mr. Greer each continued to own 61 shares. They each received a cash distribution of $146,918.02 attributable to their respective portions of the proceeds of the sale. Thus their combined distribution from G & L was $293,836. Following the sale of G & L's assets in 1982, two identical Forms 1099-DIV, Statement For Receipts of Dividends and Distributions, were issued to petitioner and Mr. Greer, each reflecting a dividend distribution of $35,976, a capital gain distribution of $82,072, and a nontaxable distribution of $28,869 for a total distribution to each of $146,917.

Motivated by the anticipated income tax consequences of the G & L dividends and distributions, Mr. Greer invested in Madison Recycling Associates, Inc. (Madison).¹ The background of this transaction and its consequences are fully described in previous judicial opinions, Greer v. Commissioner [(Greer I), 93 T.C.M. (CCH) 1216, 2007 WL 1373821 (2007)], Madison Recycling Associates v. Commissioner, 295 F.3d 280 (2d Cir.2002), affg. [81 T.C.M. (CCH) 1496, 2001 WL 339433 (2001)], and Madison Recycling Associates v. Commissioner, [64 T.C.M. (CCH) 1063, 1992 WL 277821(1992)]. We simply note here that the result of those opinions is that respondent has assessed joint deficiencies in income tax and additions to tax against petitioner and Mr. Greer for the years 1979 through 1982. These deficiencies and additions to tax are the liabilities from which petitioner seeks section 6015 relief. The parties previously agreed that any request by petitioner for relief from joint and several liability under section 6015 would not be determined in the most recent Tax Court litigation reflected in [Greer I].

The 1982 joint income tax return for petitioner and Mr. Greer was prepared by John W. Artis, C.P.A. Mr. Artis advised Mr. Greer that because the tax benefits associated with Madison significantly exceeded the dollars invested, the Madison investment was "fairly aggressive." Petitioner was not a party to those discussions and relied totally on Mr. Greer to make the decision to claim the tax benefits associated with Madison. Mr. Greer chose not to seek an opinion from Mr. Artis regarding the merits of the Madison transaction. In [Greer I], we found as fact that Mr. Greer expected that Madison would provide tax savings of approximately $1.75 for each dollar invested, and the record in this case is consistent with that finding.

On December 16, 1982, Mr. Greer signed a check for $50,000 payable to Madison and drawn on the joint checking account of petitioner and Mr. Greer to purchase a 5.5-percent limited partnership interest in Madison. This was the only checking account that petitioner and Mr. Greer had at the time. At the time of the Madison investment, petitioner knew Mr. Greer was purchasing an interest in Madison, and they briefly discussed the Madison transaction before the investment.

In March 1983 Madison filed a partnership return for the taxable year ended December 31, 1982, which reported a loss of $704,111 and a tax credit basis of $7 million. Petitioner and Mr. Greer filed joint individual income tax returns for the years 1979, 1980, 1981, and 1982. The Madison-related pass-through losses and investment credits reported on the joint returns for 1979, 1980, 1981, and 1982 were as follows:

                Year      Loss   Investment Credit
                1979       -0-          $   177.28
                1980   $ 9,808            7,153.00
                1981     3,146            4,128.00
                1982    38,726           51,131.00
                

Of the $51,131 credit reported on the 1982 joint Federal income tax return, the net credit used in 1982 from Madison totaled $33,066 because $22,012 was eliminated in the alternative minimum tax computation, and only an additional $3,947 was allowed as a credit against alternative minimum tax. As a result, credits were available to be carried back to 1979, 1980, and 1981.

The distributions from G & L were reported on the 1982 joint return. Reflecting the listed ownership of 61 shares by each, the dividends and capital gain distributions reflected on the Federal income tax return were divided equally between Mr. Greer and petitioner on two separate Forms 740, Kentucky Individual Income Tax Return, which were filed using the status married filing separately. Petitioner signed both the Federal joint income tax return and her separate Kentucky form 740 for 1982. On February 28, 1983, petitioner and Mr. Greer signed a Form 1045, Application for Tentative Refund, for the years 1979, 1980, and 1981, seeking a refund totaling $39,534 as a result of carrying back to those years the credits from the Madison investment. Subsequently in August 1983 petitioner also signed a declaration relating to the Form 1045, which was requested by the Internal Revenue Service to confirm the execution of the original Form 1045. Petitioner discussed the execution of this declaration with Mr. Greer. In October 1983 three refund checks related to the Form 1045 were deposited into the joint account of petitioner and Mr. Greer. The total deposit resulting from these checks was $39,532. There is no explanation in the record for the discrepancy of $2 between this amount and the amount claimed on the Form 1045. Petitioner did not review the 1982 joint Federal income tax return, nor did she review the Form 1045. Petitioner did not ask Mr. Greer for details about the Madison investment, and she did not ask Mr. Greer or Mr. Artis any questions about the 1982 joint Federal income tax return or the Form 1045. However, petitioner was aware of the Madison investment.

Greer v. Comm'r (Greer II), 97 T.C.M. (CCH) 1075, 2009 WL 211433, at *1-3 (2009).

The Internal Revenue Service ("IRS") began auditing Madison in 1984 and issued a notice of Final Partnership Administrative Adjustment ("FPAA") disallowing the partnership's claimed tax benefits in 1987. Greer v. Comm'r (Greer II), 557 F.3d 688, 689 (6th Cir.2009).² In 1988 Madison's partners challenged the FPAA on statute-of-limitations grounds, beginning what would be a fourteen-year legal battle. In 1992, the Greers filed amended returns for 1979-1981, remitting a check for...