Shackelford v. Commissioner
| Citation | 70 T.C.M. 945 |
| Decision Date | 05 October 1995 |
| Docket Number | Docket No. 13183-93. |
| Parties | Betty J. Shackelford v. Commissioner. |
| Court | United States Tax Court |
Roderick L. MacKenzie, Sacramento, Calif., for the petitioner. Daniel J. Parent and Kathryn K. Vetter, for the respondent.
Respondent determined a deficiency of $40,012 in petitioner's 1989 Federal income tax. Respondent further determined an accuracy-related penalty pursuant to section 6662(a)1 in the amount of $7,949.
After concessions, the issues for decision are: (1) Whether petitioner's correct filing status for the taxable year 1989 was "single" or "married filing separate"; (2) whether petitioner's Schedule C gross receipts were understated by $3,600; (3) whether petitioner is entitled to certain Schedule C deductions for the taxable year 1989; (4) whether petitioner is entitled to a charitable contribution deduction in the amount of $924; and (5) whether petitioner is liable for the accuracy-related penalty for negligence or substantial understatement of income tax pursuant to section 6662(a) for the taxable year 1989.
Some of the facts have been stipulated and are so found. The stipulation of facts, supplemental stipulation of facts, and attached exhibits are incorporated herein by this reference.
At the time petitioner filed her petition in this case, she resided in Roseville, California.
Petitioner is a certified vocational rehabilitation counselor. During 1989, petitioner operated Shackelford Vocational Rehabilitation Services as a sole proprietorship (hereinafter referred to as petitioner's business). Petitioner maintained a business checking account with Wells Fargo Bank in Marysville, California. She used the deposits to this account to determine her Schedule C gross receipts for tax purposes.
As a vocational rehabilitation counselor, petitioner worked with clients who were injured on the job and helped them find new employment. Petitioner would evaluate each client, establish a plan for the client (i.e., job placement, a school or training program, or establishing self-employment), and monitor the progress of the client. One-half to two-thirds of petitioner's clients were Hispanic. Thus, it was often necessary for petitioner to communicate in Spanish with her clients—both orally and in writing. Although petitioner could speak Spanish and could draft an informal letter or document in Spanish, she could not write in Spanish well enough to draft a formal document. Thus, she would have to draft such documents in English and hire someone to translate them into Spanish.
Petitioner and Richard Maynard (Mr. Maynard) went through a marriage ceremony on May 23, 1985, and the marriage certificate was filed on May 24, 1985. With the assistance of separate counsel, petitioner and Mr. Maynard entered into a prenuptial agreement on May 22, 1985. Petitioner filed an Inventory of Separate Property in Placer County, California, on November 5, 1985. During 1989, petitioner and Mr. Maynard resided together and held themselves out as being married.
On March 2, 1994, petitioner filed a petition in the Superior Court in El Dorado County, California, requesting an annulment of her marriage on the basis of fraud. An uncontested hearing was held on April 21, 1994, and a Judgment of Nullity was entered effective on that date.
During 1989, Mr. Maynard was a certified public accountant and a partner in Maynard & McDonald, an accounting firm. Maynard & McDonald provided payroll services for petitioner's business. A checking account in the name of Maynard & McDonald Trust was maintained at the Bank of Alex Brown. The purpose of the trust account was to handle funds for Maynard & McDonald partnership clients. Funds deposited into the account were not included in the income of Maynard & McDonald partnership.
Renata Reeves Hernandez (Renata) is petitioner's daughter. During most of 1989, Renata resided in Albuquerque, New Mexico. Renata moved to Marysville, California, in October 1989. Prior to moving to California in 1989, Renata translated English letters and documents into Spanish for use in petitioner's business. Petitioner would mail or fax the documents to Renata in Albuquerque, and Renata would translate and return them. After Renata moved to California in 1989, she went to work for petitioner's business as a translator and a job developer, working with petitioner's Hispanic clients.
For purposes of convenience, the additional findings of fact with respect to respondent's specific determinations will be combined with our discussion of each issue.
On her 1989 Federal income tax return, petitioner designated her filing status as "single". The first issue for decision is whether petitioner's correct filing status for the taxable year 1989 was "single" or "married filing separate".
As a preliminary matter, however, we must determine which party bears the burden of proof on this issue.
Generally, the burden of proof is on the taxpayer. Rule 142(a); Welch v. Helvering [3 USTC ¶ 1164], 290 U.S. 111, 115 (1933). Respondent bears the burden of proof, however, with respect to "any new matter, increases in deficiency, and affirmative defenses, pleaded in the answer". Rule 142(a). An assertion in an amended answer is treated as a new matter when it either increases the original deficiency or requires the presentation of different evidence. Wayne Bolt & Nut Co. v. Commissioner [Dec. 46,100], 93 T.C. 500, 507 (1989); Achiro v. Commissioner [Dec. 38,351], 77 T.C. 881, 890 (1981). The assertion of a new theory that merely clarifies or develops the original determination is not a new matter in respect of which respondent bears the burden of proof. Wayne Bolt & Nut Co. v. Commissioner, supra; Achiro v. Commissioner, supra; Estate of Jayne v. Commissioner [Dec. 32,497], 61 T.C. 744, 748-749 (1974).
In her notice of deficiency, respondent determined a deficiency in petitioner's income tax of $40,012 and an accuracy-related penalty of $7,949. On April 6, 1994, respondent filed a Motion for Leave to File an Amendment to Answer, which this Court granted. In her amended answer, respondent asserted a deficiency in petitioner's income tax of $42,583 and an addition to tax of $8,463 based on respondent's revised determination that petitioner's correct filing status was "married filing separate" rather than "single".
Respondent's assertion in the amended answer clearly increased the original deficiency. In addition, the new assertion requires the presentation of different evidence regarding petitioner's marital status. Accordingly, we find that the issue of petitioner's filing status is a new matter, in respect of which the burden of proof falls on respondent.
The determination of whether an individual is married shall be made as of the close of the taxable year. Sec. 7703(a)(1). A person who is married may file a joint return with his or her spouse or may file separately; however, a married person may not file as an unmarried individual. Sec. 1(a), (c), and (d). Marital status for Federal tax purposes is defined by State law. Lee v. Commissioner [Dec. 33,312], 64 T.C. 552, 556-559 (1975), affd. [77-1 USTC ¶ 9349] 550 F.2d 1201 (9th Cir. 1977); Gersten v. Commissioner [Dec. 22,466], 28 T.C. 756, 770 (1957), affd. in part and remanded in part [59-1 USTC ¶ 9303] 267 F.2d 195 (9th Cir. 1959). Thus, we must look to California law to determine whether petitioner was married as of the close of the taxable year 1989.
Petitioner and Mr. Maynard were married on May 23, 1985, and the marriage certificate was filed on May 24, 1985. As of the close of 1989, petitioner and Mr. Maynard were residing together and were holding themselves out as being married. On March 2, 1994, however, petitioner filed a petition in the Superior Court in El Dorado County, California, requesting an annulment of a voidable marriage on the basis of fraud pursuant to section 4425(d) of the California Code.2 A Judgment of Nullity was entered effective on April 21, 1994. Petitioner argues that the effect of the Judgment of Nullity is to render her marriage void from its inception and that her filing as "single" for 1989 was not in error.
In general, an annulment decree has the effect of declaring a marriage void ab initio under the law of California. It thus "relates back" to erase the marriage from the outset. Sefton v. Sefton, 291 P.2d 439, 440 (Cal. 1955); see Cal. Family Code sec. 2212(a) (West 1994). However, the doctrine of "relation back" is not without its exceptions. The doctrine is a legal fiction that was fashioned by the courts to do substantial justice as between the parties to a voidable marriage. Sefton v. Sefton, supra at 441. "A judgment of nullity of marriage is conclusive only as to the parties to the proceeding and those claiming under them." Cal. Family Code sec. 2212(b) (West 1994). Thus, the Supreme Court of California warns that "in cases involving the rights of third parties, courts have been especially wary lest the logical appeal of the fiction should obscure fundamental problems and lead to unjust or ill-advised results respecting a third party's rights." Sefton v. Sefton, supra at 441; see also Hendrix v. United States Immigration & Naturalization Serv., 583 F.2d 1102, 1103 (9th Cir. 1978); Powers v. Fox, 158 Cal. Rptr. 92, 95 (Ct. App. 1979); Interinsurance Exch. of the Auto. Club v. Velji, 118 Cal. Rptr. 596, 600 (Ct. App. 1975).
In the present case, petitioner filed her petition for an annulment of a voidable marriage only 2 months prior to the trial of this case. Up until that time, she held herself out as being married. We do not think that petitioner's current attempt to claim that she was single during 1989, as a result of the Judgment of Nullity, promotes the purposes for which the relationback doctrine was intended. Accordingly, we hold that the Judgment of Nullity in the present case does not relate back to the date of...
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