Jonson v. Comm'r of Internal Revenue
| Decision Date | 08 February 2002 |
| Docket Number | No. 21648–87.,21648–87. |
| Citation | 118 T.C. No. 6,118 T.C. 106 |
| Parties | David C. JONSON and Estate of Barbara J. Jonson, Deceased, David C. Jonson, Successor in Interest, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Taxpayers petitioned for innocent spouse relief from deficiency determined by IRS. The Tax Court, Halpern, J., held that: (1) deceased wife's estate was not entitled to relief as an innocent spouse, and (2) husband, as personal representative, was not entitled to elect spousal relief.
Decision for IRS. H and W filed joint Federal income tax returns for 1981 and 1982 on which they took large deductions attributable to a tax shelter investment. R disallowed the deductions. W claimed relief from joint liability under sec. 6013(e), I.R.C., which was repealed and replaced by sec. 6015, I.R.C. W died while still married to and living with H. Ps concede the deficiencies but pursue the sec. 6015, I.R.C. claim on behalf of W. Ps allege that, although W was aware of the tax shelter investment, the anticipated tax savings, and the tax risks, she qualifies for relief under sec. 6015(b)(1), (c), and (f), I.R.C. Ps allege that H, as W's personal representative, is eligible to elect relief under sec. 6015(c), I.R.C., because, at the time he filed such election, W was “no longer married to” H. See sec. 6015(c)(3)(A)(i), I.R.C. 1. Held: W had reason to know of the understatement attributable to the disallowed deductions, and, therefore, W is not entitled to relief under sec. 6015(b)(1)(C), I.R.C.2. Held, further, it would not be inequitable to hold W liable for the deficiencies in tax, and, therefore, W is not entitled to relief under sec. 6015(b)(1)(D), I.R.C.3. Held, further, because W did not satisfy the eligibility requirements of sec. 6015(c)(3)(A)(i), I.R.C., prior to her death, H, as personal representative, is not entitled to elect relief under sec. 6015(c), I.R.C.4. Held, further, under the facts and circumstances, R's denial of equitable relief under sec. 6015(f), I.R.C., does not constitute an abuse of discretion.Declan J. O'Donnell, for petitioners.
Randall L. Preheim, for respondent.
By notice of deficiency dated April 14, 1987, respondent determined deficiencies in, and additions to, the Federal income tax liabilities of David C. and Barbara J. Jonson (separately, David or Barbara; together, the Jonsons), as follows: 1
+-----------------------------------------------------+
¦Tax Year Ending Dec. 31¦Deficiency¦Sec. 6659 Addition¦
+-----------------------+----------+------------------¦
¦1981 ¦$32,998 ¦$9,862 ¦
+-----------------------+----------+------------------¦
¦1982 ¦33,504 ¦10,038 ¦
+-----------------------------------------------------+
On account of concessions made by the parties (which we accept),2 the sole issue for our decision is whether Barbara is relieved of any liability for tax pursuant to the provisions of section 6015.3
Unless otherwise noted, all section references are to the Internal Revenue Code in effect for the years at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. For convenience, monetary amounts have been rounded to the nearest dollar.
Some facts are stipulated and are so found. The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference.
At the time of the petition, the Jonsons resided in Golden, Colorado.
For 1981 and 1982 (the audit years), the Jonsons made joint returns of income (the 1981 joint return, the 1982 joint return, and, collectively, the joint returns). Among the attachments to the 1981 joint return is a Schedule K–1, Partner's Share of Income, Credits, Deductions, Etc.—1981, identifying David as a limited partner in a partnership, Vulcan Oil Technology (Vulcan), and showing, as a “distributive share item”, a loss of $75,620. Such loss is further reflected on a Schedule E, Supplemental Income and Loss Schedule, attached to the 1981 joint return and in a composite figure carried from such Schedule E to the first page of the 1981 joint return, where such composite figure is deducted. The Schedule K–1 also shows that David's interest in Vulcan's profits, losses, and capital is 1.415 percent. The facts are similar for 1982, except that the amount of the loss is $71,078 (the losses for 1981 and 1982 being referred to, collectively, as the Vulcan losses).
David prepared the joint returns. Barbara knew that the Vulcan losses were claimed on those returns.
Respondent's adjustments giving rise to the deficiencies here in question (sometimes, the deficiencies) result from respondent's disallowances of the Vulcan losses and a small credit (without distinction, the Vulcan losses) claimed on the joint returns. In the notice, respondent explains the disallowances as follows:
It is determined that you incurred no deductible loss for the taxable years 1981 and 1982 from the Vulcan Oil Technology a partnership in which you own an interest. It has not been established that the partnership incurred any loss for the taxable years 1981 and 1982, nor has it been established that if the partnership did have a loss for the taxable years 1981 and 1982, that you are entitled to deduct any portion of that loss on your income tax return. Accordingly, your taxable income for the years 1981 and 1982 is increased by $75,620.00 and $71,078.00.
After the initiation of this action, and following respondent's prevailing in certain test cases involving investments similar to Vulcan (the test cases),5 petitioners conceded the deficiencies.
Barbara was born on March 21, 1930. She received an associate's degree from Colorado Women's College in 1949, a bachelor's degree in physical education from the University of Colorado in 1952, and a master's degree in gifted and talented education from the University of Denver in 1979. She was an elementary and high school teacher and a member of the National Science Teachers' Association and the Colorado Association of Science Teachers. She was also an instructor at the University of Colorado. After college, in connection with her teaching activities, Barbara attended numerous teacher training sessions. During the audit years, Barbara was employed as a teacher, reporting wages therefrom of $23,602 in 1981 and $27,146 in 1982.
During the audit years, David was a consulting geologist, carrying on that business as a sole proprietor out of the Jonsons' home. He reported earnings from such business of $85,183 and $99,878, for 1981 and 1982, respectively. Sometime during the early 1990s, David incorporated his consulting business as Johnson Management, Inc.
For the audit years, in addition to Barbara's wages and David's business income, the Jonsons reported $12,538 and $29,317 for 1981 and 1982, respectively, as interest, dividends, and capital gains.
The Jonsons were married on January 7, 1956. They lived together as a married couple (and were not legally separated) on March 16, 1996, the date of Barbara's death.
The Jonsons had three children, all of whom were in college during the audit years. Aside from some unspecified amounts of money from student loans and the children's summer employment, the Jonsons paid for their children's college educations. For at least a portion of the audit years, they had a Guatemalan exchange student living with them.
Barbara died testate, leaving her entire estate (the estate) to David. The estate had a value of $365,204, and it consisted primarily of Barbara's retirement savings. On December 2, 1996, David disclaimed his interest in the estate pursuant to a document that directed that the residual estate “be advanced to their three children in equal shares, in [stock of] Jonson Management Company, Inc.” and that he, David, “continue to manage that corporation under his contract”.6
During the audit years, the Jonsons maintained only one checking account and one savings account, over both of which each had signature authority. During those years, Barbara reconciled and balanced the bank statements and wrote checks on the checking account (the joint checking account) to pay routine household bills.
Barbara managed her retirement savings. During the audit years, she and David were both partners in a partnership, Continental South Apartments. In 1980, Barbara recommended to David that they sell an apartment house they owned because Barbara thought they were not making money on the investment. David followed her recommendation, and they sold the apartment house in the same year. Neither David nor Barbara made any attempt to deceive the other with regard to his or her respective financial affairs. Barbara participated in financial matters with David, who valued her advice and participation.
Vulcan was a limited partnership formed to invest in technology for the recovery of oil and gas. David invested in Vulcan on October 2, 1981. On that date, he signed the “Vulcan Oil Technology Partners Subscription Agreement” (the subscription agreement), and he delivered to the promoters of Vulcan a check in the amount of $18,750 and two promissory notes in like amounts, which notes he subsequently paid, also by check. All three checks were drawn on the joint checking account. Because she routinely balanced the checkbook, Barbara saw the checks when they cleared.
Although Barbara was not present when David met the promoters of Vulcan and executed the subscription agreement and the notes, she later reviewed the subscription agreement, and David gave her a general explanation of the nature of the investment, expressing the view that it would provide substantial tax savings to them.
The subscription agreement contained the following representation by all those purchasing a limited partnership interest:
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Ewing v. Commissioner of Internal Revenue, Docket No. 1940-01 (U.S.T.C. 1/28/2004), Docket No. 1940-01.
...show that respondent's denial of equitable relief from joint liability under section 6015(f) was an abuse of discretion. Jonson v. Commissioner, 118 T.C. 106, 125 (2002); Cheshire v. Commissioner, 115 T.C. 183, 198 (2000), affd. 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C.......
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Ewing v. Comm'r of Internal Revenue , No. 1940–01.
...respondent's denial of equitable relief from joint liability under section 6015(f) was an abuse of discretion. Jonson v. Commissioner, 118 T.C. 106, 125, 2002 WL 199830 (2002); Cheshire v. Commissioner, 115 T.C. 183, 198, 2000 WL 1227132 (2000), affd. 282 F.3d 326 (5th Cir.2002); Butler v. ......
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Wilson v. Comm'r of Internal Revenue
...Court initially held that it would review the Secretary's exercise of discretion under § 6015(f) for abuse of discretion. Jonson v. Comm'r, 118 T.C. 106, 125 (2002), aff'd on other grounds,353 F.3d 1181 (10th Cir.2003). The D.C. and Fifth Circuits confirmed that position. Mitchell v. Comm'r......