Hilton v. Commissioner
| Decision Date | 24 July 1990 |
| Docket Number | Docket No. 20857-87. |
| Citation | 60 T.C.M. 217 |
| Parties | Donna B. Hilton v. Commissioner. |
| Court | U.S. Tax Court |
Timothy W. Burgmeier and Eddy M. Ouijano, for the petitioner. Susan S. Canavello, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency in and additions to petitioner's individual Federal income tax for calendar year ending December 31, 1981, as follows:
Additions to tax
Sec. Sec
Deficiency 6653(a)(1) 6653(a)(2)
$53,957.99 $2,697.90 *
* 50 percent of the interest due on $53,957.99
Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended and in effect for taxable year 1981. All Rule references are to the Tax Court Rules of Practice and Procedure.
The issues for decision are (1) whether the statute of limitations operates to bar assessment and collection of the deficiency and additions to tax for 1981; if not, (2) whether petitioner qualifies for relief under section 66(c); and (3) whether petitioner is liable under section 6653(a)(1) and (2).
Some of the facts have been stipulated and are found accordingly. The stipulation of facts, together with the attached exhibits, are incorporated herein.
Petitioner resided in Metairie, La., at the time the petition was filed in this case.
Petitioner graduated from high school but never attended college and, until March 1977, had always lived at home with her parents in Arabi, a small town just outside New Orleans, La. Petitioner was employed full-time from the time she graduated from high school until sometime in 1986.
In 1977 petitioner was 22 years of age, and employed as a secretary with the Chamber of Commerce in New Orleans, La. In August 1977 she met Albert L. Hilton (herein referred to as "Mr. Hilton" or petitioner's "husband"), who was 32 years of age. In October 1977 they began dating.
Petitioner thought Mr. Hilton was "fairly well off," since he owned a "comfortable" three-bedroom house in a "nice" neighborhood on La Place Street, Metairie, La., and a 1977 Pontiac Bonneville. Petitioner did not perceive it unusual that Mr. Hilton was financially secure since, in her opinion, he came from an upper middle class family.1 Petitioner, however, was unaware that Mr. Hilton had been misappropriating money from T. L. James & Co., Inc. (herein "T. L. James"), since 1970. From 1967 until either late 1976 or early 1977 Mr. Hilton worked full time for T. L. James. Thereafter, and for 14 months, Mr. Hilton worked for Kenner Marine. Sometime before March 1979 Mr. Hilton resumed working for T. L. James.
Mr. Hilton's scheme was simple and very effective. He submitted to T. L. James fictitious invoices in the name of "Industrial Material Company," an unincorporated entity (herein "Industrial") he created solely to carry out his illegal scheme. T. L. James would pay those invoices by issuing a check to Industrial and mailing it to either a Post Office Box or 3011 White Street, Mr. Hilton's parents' home address. At all relevant times, T. L. James never mailed a check to the La Place Street residence.
Mr. Hilton deposited the checks in the checking account he maintained under the name "Industrial Material Company" with the National Bank of Commerce in Jefferson Parish, La. (herein "Industrial account"), account number 050-4618-1. At all relevant times, Mr. Hilton alone maintained the Industrial account. Petitioner neither knew the account existed, nor did she have any authority to write or sign checks on the account.
Although Mr. Hilton embezzled money between 1970 and 1977 and lived a "comfortable" life, he did not live extravagantly. Rather than spending the misappropriated funds for luxury items, Mr. Hilton preferred to gamble and buy drinks for his friends. He did, however, keep some funds in the Industrial account, and used some to pay off the mortgage on his La Place Street residence.
Sometime before March 1979 Mr. Hilton resumed working for T.L. James,2 and in March 1979 married petitioner3. Petitioner remained unaware of her husband's illegal activity.
For their honeymoon, Mr. Hilton took petitioner on a seven-day trip to Paris, France, and London, England. The trip cost Mr. Hilton approximately $3,500. Petitioner neither knew, nor did Mr. Hilton tell her how much the honeymoon cost, or where he got the money to pay for it.
After their return to the United States, petitioner resided at the La Place Street residence and remained there at all relevant times. Petitioner continued to work full-time at the Chamber of Commerce and was paid semi-monthly.
Petitioner had little or no experience in managing a household, i.e., paying bills or maintaining records, since she had always lived with her parents. Thus, she placed her trust in and totally relied on her husband, who was 10 years older and more experienced, to handle all their financial matters.
Sometime in 1979 or 1980 petitioner closed her individual savings account,4 transferring the $10,000 contained therein to her husband. Later, they opened a joint checking account with The Commercial Bank & Trust Company (herein "Commercial"), account number 12-4719-0, in Metairie, La.5 Petitioner had authority to write and sign checks on that account. Between January 1, 1981, and May 15, 1981, petitioner signed only 96 of the 75 checks drawn on the Commercial account. Petitioner, however, never deposited any funds, including her paychecks, in that account. Instead she routinely cashed her paychecks, set aside enough cash to cover the household and her personal expenses, and gave any remaining cash to her husband to manage. Petitioner also had access to the check register, but Mr. Hilton never kept it balanced. Therefore, petitioner never knew how much money was in the account. If petitioner needed to write a check, she simply asked her husband if the account contained sufficient funds. Petitioner accepted his word that it did, and did not inquire any further.
Petitioner and Mr. Hilton also took a trip to Gatlinburg, Tenn., in 1979.
During 1979 petitioner earned $10,045.82 in wages, while Mr. Hilton earned $16,100. Mr. Hilton also misappropriated approximately $7,900 from T. L. James. However, only their wage income was reported on their 1979 joint individual Federal income tax return. Mr. Hilton prepared the return and petitioner signed it.
In 1980 Mr. Hilton purchased an antique car for $3,000. Although petitioner knew her husband intended to buy the car, she did not know how much it cost.
Sometime in 1980 they took a seven-day trip to the Virgin Islands. The trip cost approximately $2,500.
Between January 1, 1980, and December 31, 1980, Mr. Hilton misappropriated approximately $6,300 from T. L. James.
At her husband's instruction, petitioner filed her 1980 Federal income tax return under the married filing separately status. Mr. Hilton told petitioner to file separately, since doing so would reduce their tax liability. Petitioner believed him and filed accordingly. Although Mr. Hilton prepared the return's figures, petitioner filled out the return and signed it. Mr. Hilton separately reported the $19,320 in wages he received from T. L. James. He did not report the $6,300 misappropriated from T. L. James.
During 1981 Mr. Hilton opened four accounts at Southern Savings Association (herein "Southern").7 Petitioner did not accompany her husband when he opened these accounts. Even though her name appeared on at least one of these accounts, petitioner was not aware that any accounts existed with Southern.
In March 1981 Mr. Hilton purchased a 1981 Lincoln Town-Car for $18,000,8 financing $8,000 to $10,000. Although petitioner knew he planned to purchase the car she neither knew how much it cost, nor did she sign the financing papers.
In May 1981 petitioner and Mr. Hilton opened a joint checking account with the Metairie Bank & Trust Company (herein "Metairie"). The account remained open through and after December 31, 1982. Petitioner had authority to write and sign checks on that account. Although petitioner had access to the check register she did not "maintain" it, since that was her husband's responsibility. Mr. Hilton, however, did not keep the register balanced. Accordingly, petitioner never knew how much money was actually in the account at any given time.
On May 8, 1981, Mr. Hilton withdrew $480 from the Industrial account and deposited those funds in the joint Commercial account (No. 12-4719-0).
Sometime around May 1981 petitioner and her husband looked at a lot located in the Palm Vista subdivision of Jefferson Parish, La., where they planned to eventually build a home.9 Both participated in discussions with the real estate agent and knew that the property cost $28,000. Mr. Hilton told petitioner they would borrow the $28,000. However, instead of borrowing the money, Mr. Hilton withdrew $28,500 from the Industrial account on May 21, 1981, and deposited it in the joint Metairie account. Petitioner was unaware of this transaction.
At closing, May 22, 1981, Mr. Hilton wrote a $28,281.94 check on the Metairie account to pay for the Palm Vista lot. Although petitioner was present and signed the act of sale, she did not know that the check her husband wrote represented funds he had misappropriated from T. L. James. Rather, she believed the funds were the proceeds of a loan he had obtained.
On July 8, 1981, and October 14, 1981, Mr. Hilton withdrew a total of $1,000 from the Industrial account and deposited it in the joint Metairie account.
In late October 1981 T. L. James laid Mr. Hilton off work. Petitioner was concerned about their not having enough money to pay all their bills, especially the loan she thought was taken out to purchase the Palm Vista property. Mr. Hilton, however, advised her that they had enough money saved to cover their expenses. Petitioner believed him.
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