Lucia v. Commissioner, Docket No. 1892-87.
| Decision Date | 27 February 1991 |
| Docket Number | Docket No. 2296-87.,Docket No. 1892-87. |
| Parties | Nancy A. Lucia v. Commissioner. Floyd Joseph Lucia v. Commissioner. |
| Court | U.S. Tax Court |
Thomas H. McPeters, for petitioner Nancy A. Lucia. Floyd Joseph Lucia, pro se. Joseph E. Mudd and Laura Karlak, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
Alternatively respondent determined that petitioners are liable for the additions to tax for negligence and failure to timely file if they are not found liable for the fraud addition.
Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the taxable years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.
These cases were consolidated for trial, briefing, and opinion.
Unless otherwise indicated, all references to petitioners individually will be to Mrs. Lucia or Mr. Lucia, as the case may be.
Respondent concedes that Mrs. Lucia did not receive income from her partnership Michell Lynn Hair Design in 1981, 1982, and 1983, of $6,000, $12,000, and $12,000, respectively, and that she is not liable for the additions to tax for fraud.
After concessions by all parties, the issues for decision are (1) whether Mrs. Lucia received unreported taxable income during the taxable years in issue other than the income from Mr. Lucia's Air Force pension; (2) if so, whether she is relieved from liability under section 66(c), or entitled to a theft loss deduction under section 165(e); (3) whether Mrs. Lucia is liable for the additions to tax for negligence and failure to timely file as determined by respondent; (4) whether Mr. Lucia is exempt from Federal income tax; (5) whether Mr. Lucia is liable for the additions to tax for fraud as determined by respondent, or alternatively for the additions to tax for negligence and failure to timely file; (6) whether petitioners are liable for the addition to tax under section 6654 for failure to pay estimated taxes for all years in issue; and (7) whether petitioners are liable for the addition to tax under section 6661(a) for taxable years 1982 and 1983.
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and accompanying exhibits are incorporated herein.
Petitioners resided in Hesperia, California, at the time they filed their separate petitions in this Court.
At all relevant times Mr. Lucia was a citizen of the United States and resided in the State of California.
During the years in issue petitioners lived together in a jointly owned house at 9510 Cerra Vista, Apple Valley, California.
a. Background. Mrs. Lucia was an 18-year-old high school graduate when she married Mr. Lucia in 1954. He was in the Air Force. Mr. Lucia was the primary wage earner during their marriage, while Mrs. Lucia raised their five children and looked after their home. Although Mr. Lucia worked various odd jobs in addition to his military job, his military pay was petitioners' main source of income.
However, between November 1975 and December 1983 petitioners' financial situation changed. In November or December 1975 Mr. Lucia purchased an unincorporated retail paint business named "Paintin' Place." In mid-1977 he retired as a Major from the Air Force,2 and by 1981 he had chartered a church named "Rainbow Church of Christ" (Rainbow Church or the Church).
Mrs. Lucia, on the other hand, worked for Barstow Marine Base for three or four months during 1976, and in 1977 earned $9,496.933 in wages working as a data entry clerk for Pfizer, Inc.
b. Bank Accounts. Between 1973 and 1982 petitioners opened at least eight bank accounts, i.e., five joint personal, two sole proprietorship (business), and one "Association" (business). See appendix A. The two sole proprietorship accounts were opened by Mr. Lucia under the name "Paintin' Place."4 The association account was opened by Mr. Lucia under the name "Rainbow Church of Christ." Petitioners had signature authority on all eight accounts. Their son Louis Lucia had signatory authority on the three business accounts.
Mr. Lucia maintained two of the personal accounts5 and Paintin' Place's accounts at his place of business at 9476 Third Avenue. All four banks statements were mailed to the Third Avenue address. Additionally, Mr. Lucia maintained the account for Rainbow Church. He was listed as "Trustee" of the account, while Mrs. Lucia and Louis were listed as "Alternate Trustees." The bank statements were mailed to 16628 Elm Street, Hesperia, California, petitioners' second house.
Mrs. Lucia personally opened only one of the eight accounts, i.e., a joint personal account with High Desert Federal Credit Union (43735) in August or September of 1981. Mr. Lucia's retirement checks, Mrs. Lucia's mother's Social Security checks, and checks Mrs. Lucia received from her brothers and sisters for taking care of their mother were deposited into this account. Mrs. Lucia considered this account her own, although her mother and Mr. Lucia had signatory authority over it and wrote checks on it.
On April 8, 1983, either Louis Lucia or Mr. Lucia opened a business account with High Desert National Bank (1003860-01) under the name "Automotive Paintin Place" (Automotive). This business was located at 16268A Main Street, Hesperia, California, and the bank statements were mailed to that address. The Bank-Depositor Agreement states that the account was opened as a sole proprietorship. Louis Lucia signed the agreement first, and Mr. Lucia signed it last. Mrs. Lucia did not have signatory authority over this account. Mr. Lucia and Louis wrote checks on this account to pay personal and business expenses. During 1983 $61,491.55 was deposited into this account.
c. Loans and Ownership of Property. During the years in issue, petitioners obtained loans from various banks and used the proceeds to jointly purchase real and personal property. Neither the loan documents nor the title(s) to the properties purchased indicate that the property belonged entirely to either Mr. or Mrs. Lucia as their individual separate property.
In or around March 1976 Mr. Lucia purchased the property he rented to conduct his retail paint business located at 9476 Third Avenue, Hesperia, California. He caused the deed to this property to be titled in petitioners' names as joint tenants.
In November 1980 petitioners jointly purchased a second house located at 16628 Elm Street, Hesperia, California. Mrs. Lucia's mother occasionally lived in this house. Petitioners received personal mail and mail addressed to Rainbow Church at this address.
d. Air Force Retirement Income. Mrs. Lucia used the income from the Air Force retirement checks to pay petitioners' personal bills. However, when the retirement income was insufficient, Mr. Lucia would make up the difference with funds deposited into one of the four accounts he maintained at his business. Usually, Mr. Lucia provided Mrs. Lucia with one of these checkbooks from which she would write the necessary checks. Thereafter, Mrs. Lucia would return the checkbook to Mr. Lucia.
a. Paintin' Place. Paintin' Place's business activities include the retail sale of paint, sundries, wallpaper, drywall, and drywall finishing materials. Additionally, Mr. Lucia dealt with paint and drywall contractors.
Cash and checks were accepted in payment for all merchandise, and Mr. Lucia used the daily cash register and customers' charge receipts to total his sales and accounts receivable monthly. He also removed cash from the register to...
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