Mayors v. Commissioner
| Decision Date | 31 July 1984 |
| Docket Number | Docket No. 8338-82. |
| Citation | 1984 TC Memo 401,48 TCM (CCH) 680 |
| Parties | Susan J. Mayors v. Commissioner. |
| Court | U.S. Tax Court |
Nicholas DePento, for the petitioner. Miles D. Friedman, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined that petitioner is liable as a transferee of Joseph A. Averna for deficiencies in income tax and additions to tax arising from Averna's 1977 and 1978 taxable years as follows:
Year Deficiencies Additions to Tax
1977 ......... $15,056.27 $2,329.54
1978 ......... 14,896.07 2,190.24
By amended answer, respondent altered the asserted transferee liability against petitioner to accord with his original assessments of liabilities as to Averna, and to give effect to certain credits against Averna's account arising from levies collected against Averna's income through August 3, 1982. Pursuant to these amendments, respondent alleges that on August 27, 1979, income taxes, additions thereto, and interest were assessed against Averna as follows:
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§ 6651(a)(1) § 6651(a)(2) § 6654
Year Tax Additions Additions Additions Interest Totals
________________________________________________________________________________________________
1977 ........ $14,882.76 $3,720.69 $892.96 $532.22 $1,219.98 $21,248.61
1978 ........ 14,138.00 ....... 70.69 393.00 294.38 14,896.07
After giving credit for amounts collected on Averna's account through August 3, 1982, respondent now contends that petitioner is liable as a transferee of Averna in the total amount of $25,803.54, plus interest and additions occurring after August 3, 1982, computed as follows:
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§ 6651(a)(1) § 6651(a)(2) § 6654
Year Tax Additions Additions Additions Interest Totals
_______________________________________________________________________________________________
1977 ....... $ 4,541.62 $3,720.69 $892.96 $532.22 $1,219.98 $10,907.47
1978 ....... 14,138.00 ....... 70.69 393.00 294.38 14,896.07
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$25,803.54
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Petitioner agrees that respondent's deficiency determinations, as reflected in his amended answer, are correct. Moreover, petitioner does not dispute the method by which respondent has credited Averna's liability account through August 3, 1982. The principal issue for decision is whether and to what extent petitioner is liable as a transferee of assets under section 6901(a)1 as a result of her receipt in 1979 of certain real property which was, prior to the transfer, owned by Joseph A. Averna.
Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference.
Susan J. Mayors (hereinafter "petitioner") resided in Spring Valley, California, at the time she filed her petition in this case.
During all years relevant herein, Dr. Joseph Averna was a licensed podiatrist. Petitioner first met Dr. Averna in 1971 and began working for him as a secretary and receptionist in his podiatry practice. Later in 1971 petitioner and Dr. Averna became emotionally involved and began living together in an adults only apartment complex. They were never married.
In June 1973, a daughter, Antoinette, was born to petitioner and Dr. Averna. In anticipation of the birth of Antoinette, Dr. Averna, on February 12, 1973, purchased a residence at 1970 Avon Lane, Spring Valley, California, (hereinafter "the Avon Lane residence") for a total purchase price of $32,500. Title to this property was conveyed by grant deed to "Joseph Anthony Averna, a single man."
After the birth of Antoinette, petitioner, Dr. Averna and their daughter moved into the Avon Lane residence and lived there together continuously through November 1978. In December 1978, a rupture in the relationship between Dr. Averna and petitioner occurred and Dr. Averna left the Avon Lane residence and went to live with his parents. This separation was permanent.
During the time petitioner and Dr. Averna were living together, petitioner worked in Dr. Averna's podiatry practice as a secretary, bookkeeper and X-ray technician.2 Petitioner received a salary for her work in the podiatry practice. Additionally, petitioner kept house and cared for Antoinette while she and Dr. Averna were living together. Dr. Averna gave petitioner funds for basic living expenses during the period of their cohabitation as the need arose.
While living together, petitioner and Dr. Averna retained their own surnames, and maintained separate checking accounts. Additionally, during this period, petitioner applied for and received an automobile loan in her own name. Dr. Averna made all payments on the Avon Lane residence during the period of his cohabitation with petitioner.
In December 1978, when petitioner and Dr. Averna decided to separate, they reached an understanding, through petitioner's attorney, that Dr. Averna would transfer the Avon Lane residence to petitioner in consideration for past services rendered by petitioner to Dr. Averna. Additionally, Dr. Averna orally agreed to pay $500 per month to petitioner for support of Antoinette. This agreement was never reduced to an executed contract by petitioner and Dr. Averna.
Nevertheless, pursuant to the oral understanding, Dr. Averna, on February 20, 1979, by quit claim deed, transferred the Avon Lane residence to petitioner. At the time of this transfer, the Avon Lane residence was encumbered by a deed of trust with a remaining balance of $51,450.3 The transfer was made to petitioner subject to the underlying deed of trust encumbrance, and it was intended by the parties that petitioner would thereafter assume responsibility for payment on the deed of trust. No other monetary consideration was given to Dr. Averna in consideration for this transfer.
Although the parties had orally agreed that, subsequent to the transfer of the Avon Lane residence, petitioner would be responsible for making monthly payments on the deed of trust attached thereto, during the three months following the transfer, Dr. Averna made such payments. These payments were made by Dr. Averna in lieu of the child support he had agreed to provide, and were paid in the following amounts on the following dates:
Amount Date
$907.36 ........... 3/11/79
453.68 ........... 4/ /79
453.68 ........... 5/07/79
453.68 ........... 5/29/79
After May 1979, Dr. Averna ceased making payments on the deed of trust and petitioner thereafter made all payments thereon.
In addition to the above deed of trust payments, Dr. Averna made the following payments to petitioner during 1979:
Amount Date
$114 ............... 2/26/79
85 ............... 3/26/79
100 ............... 5/02/79
400 ............... 6/21/79
No other payments were made by Dr. Averna to petitioner after their separation.
When Dr. Averna transferred the Avon Lane residence to petitioner on February 20, 1979, he owned only one other parcel of real property. This latter parcel was located at 132—25th Street, San Diego, California (hereinafter "the 25th Street property"), and was used by Dr. Averna as his medical office. This property was purchased by Dr. Averna in February 1969, together with an adjacent piece of property, and the total price paid for the two parcels was $30,000.4
The 25th Street property is an old, single story structure located in the Lincoln Park section of southeast San Diego. This section of San Diego is a low income, high crime area.
In late 1978 or early 1979, Dr. Averna attempted to refinance the 25th Street property through the Small Business Administration and the Southeast San Diego Branch of the Bank of America. These refinancing attempts were unsuccessful.
In February and March 1979, Dr. Alverna listed the 25th Street property for sale for $65,000 and $72,000, respectively. No purchase offers were received as a result of these listings.
On July 17, 1979, Dr. Alverna sold the 25th Street property to Mr. Jack Mallory for total consideration of $18,000. Mr. Mallory was Dr. Averna's accountant. The total $18,000 purchase price was comprised of Mr. Mallory's assumption of a deed of trust, his payment of two State tax liens, and cash. The $18,000 purchase price paid by Mr. Mallory constituted, to some undisclosed degree, a bargain purchase.5
The 25th Street property changed hands twice after the sale by Dr. Averna to Mr. Mallory. On July 21, 1981, Mr. Mallory sold this property to Dr. L.J. and Marsha Jamison for $38,000. Dr. Jamison was not acquainted with Mr. Mallory when he and his wife purchased the 25th Street property. Dr. Jamison had been an investor in real estate since 1961 and felt that he purchased the property at a fair price. This purchase was at arms length.
In September 1982, Dr. and Mrs. Jamison sold the 25th Street property to Dr. Albert Richardson for a total purchase price of $65,000. Dr. Richardson is a dentist and practices in an office located...
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