McCoy v. Comm'r of Internal Revenue
| Decision Date | 09 March 1972 |
| Docket Number | Docket No. 4926-69. |
| Citation | 57 T.C. 732 |
| Parties | ROBERT L. McCOY AND EVA M. McCOY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Orvall L. Viers, for the petitioners.
J. C. Linge, for the respondent.
Petitioner's husband realized income in 1965 upon the incorporation of a partnership whose liabilities exceeded the adjust basis of the transferred assets, but he did not report the gain in the joint income tax return filed that year. T.C. Memo, 1971-34. Held, petitioner is not relieved of joint and several liability for tax under sec. 6013(e), I.R.C. 1954, since her lack of knowledge of the omission was merely ignorance of the legal tax consequences of the incorporation, of which her husband was equally unaware.
The first opinion in this case was issued as a memorandum filed February 23, 1971. At that time we sustained, after minor adjustments, the deficiencies for 1964 and 1965 determined by the Commissioner in the individual income tax of the petitioners, who filed joint returns for the 2 calendar years and who at all time throughout this proceeding have been living together as husband and wife. After our decision was promulgated we granted petitioners' motion 6013(e),1 which was added to the Internal Revenue Code by section 1, Pub. L. 91-679, on January 12, 1971, a date subsequent to the close of the trial. In that connection we set the case for a further hearing on the issue whether Eva M. McCoy should be relieved of liability for tax for the year 1965 under the provisions of the new statute.
The deficiency of $15,398.82 for 1965 is largely attributable to gain realized and recognized under section 357(c) upon the incorporation on January 1, 1965, of the business which Robert E. McCoy carried on as an equal partner with one James E. Curry. We determined that in connection with the transfer of the business the corporation assumed liabilities which exceeded the adjusted basis for the assets in the hands of the partnership and which amounted to taxable income. In the statutory notice the Commissioner added approximately one-half of the gain to the gross income of the petitioners. They contend now only that Eva McCoy should be relieved of liability for the tax attributable to that income.
The record consists of the stipulation of facts, the exhibits, and the testimony received at the trial on September 9, 1970, as incorporated in T.C. Memo. 1971-34, and the testimony received at the hearing held October 5, 1971.
All of the omitted gross income in question is attributable to Robert McCoy. The only ocasion Eva McCoy earned income of her own was a 3-month period, not in the taxable years, during which she was employed as a draftsman by a consulting engineering company. She was aware that James Curry and her husband were partners in the business and she knew the general nature of their work. The daily activities or the particular projects that the company engaged in were not familiar to her.
Eva McCoy took no part in the preparation of the joint income tax returns, but she did peruse them when she signed her name.
In 1965, the McCoys owned a six-room house which was mortgaged and two old-model automobiles. There were no dependents. Had Robert McCoy personally been required to make good on $75,000 to $150,000 worth of the partnership liabilities at that time he would have strained the family budget severely if he succeeded at all in discharging the obligations.
OPINIONNeither party questions that the requirements of section 6013(e)(1)(A) have been satisfied, nor do we.
As for subparagraph B, the only direct evidence of Eva McCoy's lack of knowledge of the omission of income is her conclusory assertion to that effect. On the other hand we are aware that she had a passing familiarity with her husband's business affairs and that she took an interest in the contents of the joint returns.
Although the taxpayer has the burden of proving lack of knowledge, Nathaniel M. Stone, 56 T.C. 213, 227 (1971), Jerome J. Sonnenborn, 57 T.C. 373 (1971), we are not forced to resolve this issue on the weight of the evidence alone. Petitioners have misconstrued the scope of the statute in the first place. The gist of their argument is that since as laymen they were naturally unaware of the tax consequences of incorporating the deficit partnership and since they did not realize the resulting gain in cash or other tangible form, neither husband nor wife should be held liable, but in any event the wife should be relieved of liability in view of section 6013(e). We can understand their frustration, but we do not think section 6013(e) was designed to abate joint and several liability where the lack of knowledge of the omitted income is predicated on mere ignorance of the legal tax consequences of transactions the facts of which are either in the possession of the spouse seeking relief or reasonably within his reach.
The legislative declarations and the cases support this...
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Ray v. Commissioner
...had a passing familiarity with her husband's law practice and other business ventures and the joint returns. See McCoy v. Commissioner [Dec. 31,291], 57 T.C. 732, 734 (1972). In addition, Joyce testified that she became aware of petitioner's involvement in Fun Machines in 1979, the first ye......
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Lynch v. Commissioner
...of the legal tax consequences of such transaction is insufficient to base a claim for relief under section 6013. McCoy v. Commissioner Dec. 31,291, 57 T.C. 732, 734 (1972); see also Quinn v. Commissioner 75-2 USTC ¶ 9764, 524 F. 2d 617, 626 (7th Cir. 1975), affg. Dec. 32,597 62 T.C. 223 (19......
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In re Barry
...knowledge of the details and tax consequences of the transactions. See Quinn v. Commissioner, 524 F.2d 617 (7th Cir.1975); McCoy v. Commissioner, 57 T.C. 732 (1972). Significant participation in business affairs or bookkeeping is a factor to consider. See Sanders v. United States, 509 F.2d ......
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Bokum v. Comm'r of Internal Revenue
...must be unaware of the circumstances which give rise to that omission and not merely to the tax consequences of the facts. McCoy v. Commissioner, 57 T.C. 732 (1972); Quinn v. Commissioner, 62 T.C. 223 (1974), affd. 524 F.2d 617 (7th Cir. 1975); Smith v. Commissioner, 70 T.C. 651, 672-673 (1......