The opinion
T.C. Memo. 1997-87
UNITED STATES TAX COURT
BEVERLY D. GOINGS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12090-94. Filed February 19, 1997.
Randy P. Zinna, for petitioner.
Stevens E. Moore, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WRIGHT, Judge: Respondent determined deficiencies in,
additions to, and penalties on petitioner’s Federal income tax
for taxable years 1985 through 1990 in the following amounts:1
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years at issue,
(continued...)
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Year Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B) 6661 6663
1
1985 $49,562 $ 24,781 --- --- $12,391 ---
2
1986 66,134 --- --- $99,125 33,042 ---
3
1987 97,352 --- --- $73,014 24,338 ---
1988 1,473 108,178 --- --- --- 36,059 ---
1989 21,904 --- --- --- --- --- $16,428
1990 3,300 --- --- --- --- --- 2,475
1
50% of the interest due on $49,562
2
50% of the interest due on $132,166
3
50% of the interest due on $97,352
After concessions, the issues for decision are:
(1) Whether petitioner is liable for additions to tax and
penalties for fraud under section 6653(b) or section 6663 for any
taxable year at issue. We hold that she is not.
(2) Whether petitioner qualifies for "innocent spouse"
relief under section 6013(e) for any taxable year at issue. We
hold that she does not.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein. At the time the petition was filed in this
case, petitioner resided in Baton Rouge, Louisiana. During the
years at issue, petitioner was married to Wayne T. Goings (Mr.
Goings). Petitioner and Mr. Goings (occasionally the couple)
were divorced on March 19, 1993. The couple filed joint Federal
income tax returns for each taxable year at issue.
Petitioner is a high school graduate. She is also a
graduate of a secretarial school, having completed a 9-month
1
(...continued)
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
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training program. In 1964, upon completion of the above-
referenced secretarial training program, petitioner began working
for the Louisiana State Department of Transportation (LSDT) as a
secretary in LSDT's legal department. She remained with LSDT
until January 1988, when she began working part time as a
secretary in a law firm located in Baton Rouge, Louisiana.
Petitioner quit this part-time position shortly after obtaining
it. Petitioner's income from wages during the taxable years at
issue were as follows:
Year Wage Income
1985 $13,426.66
1986 13,413.74
1987 14,394.71
1988 22,775.85
1989 10,800.00
1990 9,768.00
Like petitioner, Mr. Goings earned a high school diploma.
Thereafter, without earning a degree, he attended three State
universities between June 1964 and April 1969. Following a short
recess, Mr. Goings returned to college and obtained a bachelor's
degree in general studies in 1973. Commencing in 1969, Mr.
Goings was employed by Allied-Signal, Inc. (Allied). Allied,
among other things, produced polyethylene resin. During the
years at issue, Mr. Goings was Allied's distribution manager.
Mr. Goings received the following income from wages during the
years at issue:
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Year Wage Income
1985 $49,754.84
1986 54,745.39
1987 65,025.18
1988 57,669.00
1989 59,259.99
1990 88,275.39
In 1984, petitioner and Mr. Goings created a corporation
called Bevway Chemical Corporation, Inc. (Bevway) The name
Bevway consists of the first three letters of Beverly and Wayne,
petitioner's and Mr. Goings' first names. Before its dissolution
in 1991, Bevway was in the business of brokering scrap resin.
Also occurring in 1984, petitioner, Mr. Goings, Robert S.
Morris (Morris), and Mary B. Morris formed a corporation called
Deep South Chemical Corporation (Deep South). Deep South was in
the business of mixing resin with other chemicals. Deep South
was dissolved in May 1986.
In October 1985, Mr. Goings and Morris formed Highland
Enterprises, Inc. (Highland). Shortly after its formation,
Highland purchased Deep South's assets and began conducting Deep
South's business. Morris eventually terminated his ownership
position in Highland, leaving petitioner and Mr. Goings as
Highland's sole owners.
Robert Bordelon (Bordelon) was an established customer of
Allied. He was in the business of processing scrap resin into
marketable pellets. In order to assure a ready supply of scrap
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resin for his business, Bordelon made monetary payments to Mr.
Goings during each taxable year at issue. In exchange for these
kickback payments, Mr. Goings, in his capacity as Allied's
distribution manager, made Allied's scrap resin available for
Bordelon to purchase. These kickback payments were in addition
to the price Bordelon paid Allied for the resin. Bordelon made
the following kickback payments to Mr. Goings:
Year Kickback
1985 $110,000
1986 139,000
1987 230,000
1988 492,000
1989 66,000
1990 10,000
Allied was unaware of Bordelon's payments to Mr. Goings and
expressly prohibited its employees from establishing such payment
arrangements with its customers.
Petitioner and Mr. Goings did not report any of the payments
Bordelon made to Mr. Goings on their original returns for any
taxable year at issue. They did, however, report $27,000 of the
$139,000 that Mr. Goings received from Bordelon in 1986 as gross
receipts on Bevway's corporate tax returns for taxable years 1986
and 1987.
Cheryl Millin (Millin) prepared the couple's joint returns
for 1985 through 1990. Millin also prepared income tax returns
for Bevway, Deep South, and Highland. Millin was unaware of
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Bordelon's payments to Mr. Goings at the time she prepared the
couple's joint returns for taxable years 1985 through 1988.
She first learned of such payments when Mr. Goings inquired as to
the procedure for filing amended tax returns sometime in 1989.
Petitioner did not review any of the couple's joint returns prior
to signing them.
In September 1989, the IRS initiated an examination of
Bordelon's 1987 Federal individual income tax return. That
examination revealed Bordelon's kickback payments to Mr. Goings.
The examination also revealed that Bordelon had not issued a Form
1099 to Mr. Goings with respect to any of the kickback payments.
Bordelon subsequently issued a Form 1099 to Mr. Goings with
respect to the payments made in taxable years 1986, 1987, 1988,
and 1989.2
In November 1989, after receiving the Forms 1099 from
Bordelon, Mr. Goings and petitioner filed amended tax returns for
taxable years 1986, 1987, and 1988 (the amended returns). Each
amended return listed the kickback payments as income and
contained the corresponding additional tax payment. Petitioner
and Mr. Goings did not amend their 1989 tax return, and it is
unclear from the record whether they amended their 1985 or 1990
returns.
2
It is unclear from the record whether Bordelon issued a
Form 1099 to Mr. Goings with respect to the payments made in 1985
and 1990.
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Also occurring in November 1989, the IRS initiated an
examination of the couple's original returns for taxable years
1985 through 1988. This examination revealed that the kickback
payments were not reported on those returns. In October 1990,
the IRS sent an appointment letter to petitioner and Mr. Goings
explaining that the IRS was auditing the couple's returns for
1987 and 1988.3 The letter sought to schedule an appointment
with petitioner and Mr. Goings at their home. Shortly after
receipt of that letter, Mr. Goings contacted the IRS and
confirmed the appointment.
On November 5, 1990, Revenue Agent Jeanne Gavin (Gavin)
arrived at the couple's home. Gavin was greeted by Mr. Goings
and was informed that petitioner would not be present at the
meeting. Gavin conducted the interview with Mr. Goings. In the
course of the meeting, Goings informed Gavin that he was aware of
how much money he had received from Bordelon and that Bordelon
had only made kickback payments to him in 1986, 1987, and 1988.
Mr. Goings also admitted that he knew such payments should have
been reported on his tax returns.
In December 1990, Gavin recommended that a criminal
investigation be instituted against petitioner and Mr. Goings.
A criminal investigation was subsequently initiated against Mr.
Goings, but it did not extend to petitioner. In July 1993, Mr.
3
The examination was eventually extended to cover 1985
through 1990.
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Goings was indicted under section 7206(1) for two counts of
filing false Federal income tax returns for taxable years 1987
and 1988. It was the omission of the income received from
Bordelon from the couple's joint returns that gave rise to this
indictment. In January 1994, Mr. Goings entered a guilty plea to
both counts. His sentence included an 11-month prison term.
During the course of the criminal proceedings, Mr. Goings
admitted to receiving the $1,047,000 in income described above
from Bordelon.
In April 1991, petitioner and Mr. Goings formed an
irrevocable trust (the trust), transferring three parcels of real
property and several items of equipment to the trust. The
couple's three children were the beneficiaries of the trust.
Of the three parcels of real estate transferred to the trust, one
was purchased in November 1981 for $26,000, one was purchased in
September 1987 for $315,000, and one was purchased in November
1989 for $15,000. In 1991, petitioner transferred real property
worth $146,280 to the trust. Between 1992 and 1994, Highland
paid the following amounts of rent to the trust for use of
various pieces of equipment and the real property described above
as having been purchased in 1987 for $315,000:
Year Amount
1992 $40,940
1993 28,223
1994 49,038
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Between 1992 and 1994, the trust distributed the following
amounts to its three beneficiaries:
Year Amount
1992 $40,000
1993 32,693
1994 49,038
During the years at issue, petitioner and Mr. Goings
maintained at least one joint checking account (the joint
account). Petitioner managed this account. She balanced it
periodically and paid her family's household bills with checks
drawn against it. The couple also maintained a joint investment
account with Merrill Lynch (the Merrill Lynch account).
Petitioner and Mr. Goings opened the Merrill Lynch account in
March 1986 with an initial investment of $150,000. The account
statements for the Merrill Lynch account were sent to the
couple's home. In addition to the two accounts previously noted,
Mr. Goings also maintained an individual account (the individual
account) to which petitioner did not have signatory access.
Petitioner, however, was aware of the individual account and drew
two checks against it by signing Mr. Goings's name. The payments
Bordelon made to Mr. Goings were deposited in the couple's
accounts as follows:
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Payment Bevway Individual Joint Merrill Lynch
Year Amount Corporation Account Account Account
1985 $110,000 $10,000 $62,767
1986 139,000 27,000 $ 11,000 48,000 $ 53,000
1987 230,000 230,000
1988 492,000 81,000 411,000
1989 66,000 66,000
1990 10,000 10,000
Totals $1,047,000 $37,000 $102,000 $110,767 $760,000
Respondent determined that petitioner and Mr. Goings had
unreported income in the following amounts and from the following
sources:
Source 1985 1986 1987 1988 1989 1990
Payments from
Bordelon $110,000 $112,000 $230,000 $492,000 $66,000 $10,000
Dividends from
Allied 24
Other Income
Bevway 15,000
Highland 50,250
Total $110,024 $162,250 $245,000 $492,000 $66,000 $10,000
Respondent mailed the notice of deficiency to petitioner on April
15, 1994.
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OPINION
Petitioner concedes that she is not entitled to "innocent
spouse" relief for taxable year 1990. Additionally, petitioner
did not raise the affirmative defense of the statute of
limitations in her pleadings for any taxable year at issue.
Accordingly, we find that petitioner has waived such defense.
Rule 39.
Prior to resolving the issues of this case, it is necessary
to address a preliminary matter. Petitioner devotes an extensive
portion of her posttrial briefs to a contention that certain
testimony elicited at trial from Revenue Agent Gavin was
inadmissable hearsay. Petitioner further maintains that the
issues of this case should be resolved in her favor because,
petitioner maintains, respondent's arguments are dependent upon
such inadmissable hearsay. We refrain from presenting a
discussion of the admissibility of specific portions of Agent
Gavin's testimony because, contrary to petitioner's assertion,
the extent of respondent's reliance upon such testimony is
limited to respondent's fraud argument and only insignificantly,
if at all, extends to her innocent spouse argument. As is
discussed below, we resolve the issue of fraud in petitioner's
favor. We reach our conclusion with respect to the "innocent
spouse" issue without considering the contested portions of Agent
Gavin's testimony.
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Issue 1. Addition to Tax for Fraud.
Respondent bears the burden of proving fraud by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). Respondent must
establish that petitioner underpaid her taxes for each taxable
year at issue and that some part of that underpayment was due to
petitioner's intent to conceal, mislead, or otherwise prevent the
collection of such taxes. Parks v. Commissioner, 94 T.C. 654,
660-661 (1990); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983);
see also Webb v. Commissioner, 394 F.2d 366, 377 (5th Cir. 1968),
affg. T.C. Memo. 1966-81. For the reasons set forth below, we
find that respondent has failed to satisfy her burden.
The issue of fraud presents a factual question that must be
decided on the basis of an examination of all the evidence in the
record. Mensik v. Commissioner, 328 F.2d 147 (7th Cir. 1964),
affg. 37 T.C. 703 (1962); Stone v. Commissioner, 56 T.C. 213, 224
(1971); Stratton v. Commissioner, 54 T.C. 255, 284, supplemented
by 54 T.C. 1351 (1970). Fraud is never presumed; it must be
established by some independent evidence of fraudulent intent.
Beaver v. Commissioner, 55 T.C. 85 (1970). Fraud may be proved
by circumstantial evidence and inferences drawn from the record
because direct proof of a taxpayer's intent is rarely available.
Spies v. United States, 317 U.S. 492 (1943); Rowlee v.
Commissioner, 80 T.C. 1111 (1983); Stephenson v. Commissioner, 79
T.C. 995 (1982), affd. 748 F.2d 331 (6th Cir. 1984).
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Fraudulent intent may be inferred from various "badges of
fraud," including understatement of income, implausible or
inconsistent explanations of behavior, concealing assets, and
failure to cooperate with tax authorities. See Bradford v.
Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo.
1984-601; Webb v. Commissioner, supra at 379; Marcus v.
Commissioner, 70 T.C. 562, 577 (1978), affd. without published
opinion 621 F.2d 439 (5th Cir. 1980). A taxpayer's
sophistication, education, and intelligence may be considered in
determining whether or not he or she had fraudulent intent.
Halle v. Commissioner, 175 F.2d 500, 503 (2d Cir. 1949), affg. 7
T.C. 245 (1946); Niedringhaus v. Commissioner, 99 T.C. 202, 211
(1992). The taxpayer's evasiveness on the stand, inconsistencies
in his or her testimony, and the lack of credibility of such
testimony are factors in considering the fraud issue. Bradford
v. Commissioner, supra; Toussaint v. Commissioner, 743 F.2d 309,
312 (5th Cir. 1984), affg. T.C. Memo. 1984-25.
Following a careful review of the record, we conclude that
respondent has failed to satisfy her burden with respect to this
issue. Although respondent has clearly and convincingly
established that an underpayment exists with respect to each
taxable year at issue, she has not clearly and convincingly
established that a portion of any such underpayment was due to
petitioner's fraud. The four indicia of fraud cited by
respondent do little more than suggest that petitioner may have
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collaborated with Mr. Goings to understate their combined income.
Such indicia, however, do not satisfy respondent's burden of
proof. Stated simply, we find respondent's argument with respect
to this issue thin and unpersuasive.
Issue 2. Innocent Spouse.
As a general rule, a husband and wife who file joint tax
returns are jointly and severally liable for Federal income tax
due on their combined incomes. Sec. 6013(d)(3); Park v.
Commissioner, 25 F.3d 1289, 1292 (5th Cir. 1994), affg. T.C.
Memo. 1993-252. Section 6013(e), however, mitigates this general
rule to some extent. Park v. Commissioner, supra. Nonetheless,
Congress regards joint and several liability as an important
counterpart to the privilege of filing joint tax returns, which
generally results in a lower tax on the combined incomes of
spouses than would be due were they to file separate returns, and
any relaxation of the rule of joint and several liability depends
upon compliance with the conditions of section 6013(e).
Sonnenborn v. Commissioner, 57 T.C. 373, 380-381 (1971).
However, because of its remedial purpose, the "innocent spouse"
rule, as section 6013(e) is commonly referred, must not be given
an unduly narrow or restrictive reading. Sanders v. United
States, 509 F.2d 162, 167 (5th Cir. 1975). The question of
whether a taxpayer has established that he or she is entitled to
relief as an "innocent spouse" is one of fact. Park v.
Commissioner, supra at 1291.
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Pursuant to section 6013(e)(1), an "innocent spouse" is
relieved of liability if he or she proves: (1) A joint return
has been made for a taxable year; (2) on such return there is a
substantial understatement of tax attributable to grossly
erroneous items of the other spouse; (3) he or she did not know,
and had no reason to know, of such understatement when he or she
signed the return; and (4) after consideration of all the facts
and circumstances, it would be inequitable to hold him or her
liable for the deficiency in income tax attributable to such
understatement. See Park v. Commissioner, supra at 1292.
Petitioner bears the burden of establishing that each of the four
requirements of section 6013(e) has been satisfied. Purcell v.
Commissioner, 826 F.2d 470, 473 (6th Cir. 1987), affg. 86 T.C.
228 (1986); Sonnenborn v. Commissioner, supra at 381-383.
Moreover, the requirements of section 6013(e) are conjunctive; a
failure to meet any one requirement prevents a spouse from
qualifying for relief. Park v. Commissioner, supra at 1292;
Purcell v. Commissioner, supra; Bokum v. Commissioner, 94 T.C.
126, 138 (1990), affd. 992 F.2d 1132 (11th Cir. 1993).
The parties agree that petitioner and Mr. Goings filed a
joint return for each taxable year at issue. The parties also
agree that there is a substantial understatement of tax
attributable to grossly erroneous items of Mr. Goings for each
taxable year at issue. Respondent contends, however, that
petitioner knew or had reason to know of such substantial
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understatements and that it would not be inequitable to hold her
liable for the deficiencies attributable to those
understatements. Petitioner disagrees.
Section 6013(e)(1)(C)
In resolving whether petitioner had reason to know that the
returns she signed for the years at issue contained substantial
understatements within the meaning of section 6013(e)(1)(C), the
Court must inquire whether a reasonably prudent person, under the
circumstances of petitioner, could have been expected to know at
the time of signing each return that each such return contained a
substantial understatement or that further investigation was
warranted. Bliss v. Commissioner, 59 F.3d 374, 378 (2d Cir.
1995), affg. T.C. Memo. 1993-390; Park v. Commissioner, supra at
1293 (citing Sanders v. United States, supra at 166-167 and n.5);
Bokum v. Commissioner, supra at 148. The relevant knowledge is
of the transaction giving rise to the income omitted from the
return, rather than of the tax consequences of such transaction.
Quinn v. Commissioner, 524 F.2d 617, 626 (7th Cir. 1975), affg.
62 T.C. 223 (1974). Consequently, a spouse who has reason to
know of such a transaction does not qualify for relief as an
"innocent spouse". Park v. Commissioner, supra; Sanders v.
United States, supra. Additionally, a spouse may have a duty to
inquire further if he or she knows enough facts so as to be
placed on notice of the possibility of a substantial
understatement. Guth v. Commissioner, 897 F.2d 441, 444-445 (9th
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Cir. 1990), affg. T.C. Memo. 1987-522. Factors to be considered
in determining whether a taxpayer had reason to know within the
meaning of section 6013(e)(1)(C) include: (1) The level of
education of the spouse seeking relief; (2) the alleged innocent
spouse's involvement in his or her family's financial and
business activities; (3) any substantial unexplained increase in
the family's standard of living; and (4) the culpable spouse's
evasiveness and deceit about the family's finances. Park v.
Commissioner, supra at 1293. In reaching our decision, we
consider the interaction among these factors, and different
factors may predominate in different cases. Bliss v.
Commissioner, supra at 378.
With respect to each taxable year at issue, we find that
petitioner has failed to establish that she had no reason to know
that her joint return contained a substantial understatement.
We first consider petitioner's level of education. Despite
her brief attendance at a secretarial trade school, we find that
petitioner is not formally educated beyond the high school level.
The trade school petitioner attended was not an institution of
higher learning, and we reject respondent's attempts to
characterize it as such. The secretarial training petitioner
received was practical in nature and was designed to prepare
students to enter the labor force with skills necessary to
perform secretarial duties effectively and efficiently. Such
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training was not otherwise designed to advance the level of
petitioner's formal education.
Respondent contends that petitioner's 20-plus years as a
secretary in LSDT's legal department serves as an adequate
substitute for petitioner's lack of formal education beyond the
high school level. We disagree, and, in light of the entire
record, coupled with our observations of petitioner at trial,
conclude that this factor narrowly favors petitioner.
We next consider petitioner's involvement in her family's
financial and business affairs. Perfect knowledge of one's
family's financial affairs is not required to satisfy the reason
to know standard. Shea v. Commissioner, 780 F.2d 561, 567 (6th
Cir. 1986), affg. in part, revg. in part and remanding T.C. Memo
1984-310; Sanders v. Commissioner, 509 F.2d at 168. We conclude
that petitioner has failed to establish that her involvement in
her family's affairs was insufficient to put a reasonable person
in her position on notice that the income reported in the returns
at issue was erroneous or that further inquiry was warranted.
While petitioner maintains that Mr. Goings had exclusive
control of her family's financial affairs, this contention is
contradicted by petitioner's own testimony. Petitioner testified
that she, not Mr. Goings, managed her family's joint checking
account. In 1985 and 1986, $62,767 and $48,000, respectively, of
the funds Bordelon paid Mr. Goings were deposited into the joint
account managed by petitioner. Such deposits are significant in
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light of petitioner's testimony that, although she was unaware of
her husband's annual salary from Allied, she believed that such
salary was approximately $50,000. Petitioner does not attempt to
explain this disparity. That is, petitioner does not attempt to
explain how Mr. Goings could deposit the above amounts into the
joint account while supposedly earning $50,000 per year. A
taxpayer claiming innocent spouse relief cannot simply turn a
blind eye to facts within his or her reach that would have put a
reasonably prudent taxpayer on notice that further inquiry needed
to be made. Sanders v. United States, supra at 169.
Similarly, the couple's Merrill Lynch investment account was
also a joint account, and, between 1987 and 1989, a total of
$760,000 was deposited into such account. The statements for the
Merrill Lynch account were mailed to the couple's residence and
were readily available for petitioner's review. We decline to
accept petitioner's self-serving testimony that she never
examined such records because such testimony is unreasonable and
lacks credibility.
The third factor we consider is the presence of unusual or
lavish expenditures by petitioner's family. A taxpayer claiming
relief as an innocent spouse cannot close his or her eyes to
unusual or lavish expenditures that might have alerted him or her
to unreported income. Terzian v. Commissioner, 72 T.C. 1164,
1170 (1979); Mysse v. Commissioner, 57 T.C. 680, 699 (1972). The
presence of unusual or lavish expenditures may put a taxpayer on
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notice that it is probable that income is being omitted from a
joint return. Estate of Jackson v. Commissioner, 72 T.C. 356,
361 (1979).
We agree with respondent that the record contains ample
instances of unusual or lavish expenditures that should have
placed petitioner on notice that she and Mr. Goings were spending
more money than they were reporting on their joint returns. In
1985, the couple purchased two pieces of real estate for a total
purchase price of $190,000. They paid $47,500 in cash and
financed the remainder with a note requiring quarterly
installment payments of approximately $8,000. Similarly, in 1986
the couple established their Merrill Lynch investment account
with $150,000. In 1987, petitioner and Mr. Goings made another
real estate purchase, paying the entire $315,000 purchase price
in cash. In 1989, the couple paid delinquent taxes in the amount
of $297,345. Petitioner and Mr. Goings also purchased real
estate in 1990 for $95,000 in cash.
Petitioner's argument with respect to this factor is cursory
and lacks meaningful substance. At trial, when questioned about
the above-referenced real estate purchases and the creation of
the investment account, petitioner acknowledged her signature on
related documents but emphatically denied knowing anything about
the substance of the underlying transactions. Specifically,
petitioner claims that she routinely signed documents without
reading them and that the documents relating to the above-
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referenced real estate purchases and the creation of the
investment account were among the documents that she signed
without reading. Petitioner also explains that the absence of
unusual or lavish expenditures is apparent from the fact that her
children attended public schools and that she did not make any
substantial expenditures herself.
We are not persuaded by petitioner's assertions in this
regard. Because her testimony is self-serving and lacks
credibility, we decline to accept it. Accordingly, we conclude
that this factor favors respondent.
The fourth factor we consider is whether Mr. Goings was
forthright about the omitted income. Petitioner has not
established that Mr. Goings was evasive concerning his true level
of income. It is obvious from the record that Mr. Goings did not
attempt to conceal the kickback income from petitioner. Indeed,
quite the contrary is true. Mr. Goings deposited approximately
83 percent, or $870,767, of the kickback income into the couple's
joint accounts. Nearly 11 percent of the kickback income was
deposited into an account managed by petitioner. In contrast,
less than 10 percent of the kickback income was deposited in Mr.
Goings's exclusive account. Although making deposits into an
exclusive account may indicate evasive intent, we hesitate to
conclude that Mr. Goings possessed such intent in light of the
amount of funds he deposited into the couple's joint accounts.
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Having thoroughly examined the circumstances of the instant
case, we conclude that petitioner has failed to establish that
she had no reason to know of the substantial understatements of
tax contained on her joint returns resulting from the omission of
the income that Mr. Goings received from Bordelon during each of
the taxable years at issue. Of the four factors discussed above,
only petitioner's level of education supports her argument. The
weight we attribute to such factor, however, does not exceed the
amount of weight we attribute to any of the remaining three
factors, each of which favors respondent. Accordingly, we find
that, based on the entire record, petitioner had reason to know
of the substantial understatement of tax on her joint returns for
each taxable year at issue resulting from the omission of the
income that Mr. Goings received from Bordelon.
Section 6013(e)(1)(D)
The next matter we consider is whether it would be
inequitable to hold petitioner liable for the deficiencies in tax
attributable to the omitted kickback income. See sec.
6013(e)(1)(D). In answering this question, we take into account
all of the facts and circumstances. Id.; sec. 1.6013-5(b),
Income Tax Regs. A factor to be considered is whether the spouse
seeking relief significantly benefited, either directly or
indirectly, from the omitted income. Buchine v. Commissioner, 20
F.3d 173, 181 (5th Cir. 1994), affg. T.C. Memo. 1992-36; sec.
1.6013-5(b), Income Tax Regs. Normal support, which is to be
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measured by a couple's circumstances, is not considered a
significant benefit. Sanders v. United States, 509 F.2d at 168;
Terzian v. Commissioner, 72 T.C. at 1172; Mysse v. Commissioner,
57 T.C. at 699. A significant benefit exists if expenditures
have been made which are unusual for the taxpayer's accustomed
lifestyle. Terzian v. Commissioner, supra. Other factors
include: (1) Whether the spouse seeking relief has been deserted
by the other spouse or is divorced or separated from that spouse,
sec. 1.6013-5(b), Income Tax Regs.; and (2) probable future
hardships that would be visited upon the purportedly "innocent
spouse" were he or she not relieved from liability. Sanders v.
United States, supra at 171 n.16.
Based upon the record in the instant case, we conclude that
petitioner has failed to establish that she did not receive
significant benefits from the funds that Mr. Goings received from
Bordelon. Petitioner has failed to establish that Mr. Goings
used the kickback funds in a manner that did not benefit her
significantly. To the contrary, the record indicates that such
funds were used for the significant benefit of the family. A
total of $110,767, or nearly 11 percent, of the omitted income
was deposited into the couple's joint checking account.
Petitioner managed and drew checks against that account.
Similarly, $760,000 of the kickback funds was deposited into the
couple's joint Merrill Lynch investment account and was
subsequently invested in various assets. Additionally,
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petitioner and Mr. Goings made substantial real estate purchases,
presumably using, at least in part, funds received from Bordelon.
Her attempts to explain such purchases are unpersuasive.
Moreover, petitioner has not established that such benefits were
consistent with her then-existing lifestyle, nor has she
established that they constituted normal support.
When assessing whether it would be inequitable to hold
petitioner liable for the deficiencies attributable to Mr.
Going's receipt of unreported income, we also consider whether
petitioner was deserted or divorced subsequent to that activity.
Although petitioner and Mr. Goings were divorced in 1993, we find
that such circumstance does not outweigh the significant benefits
petitioner received from the omitted kickback income.
Furthermore, petitioner has not established that any hardship she
would encounter as a result of incurring liability for the
deficiencies attributable to the omission of the kickback income
from the joint returns at issue would make it inequitable to hold
her jointly liable for those deficiencies.
Accordingly, we find that it would not be inequitable to
hold petitioner liable for the understatements attributable to
the funds Mr. Goings received from Bordelon during the taxable
years at issue.
Because petitioner has failed to satisfy all of the
conjunctive factors set forth in section 6013(e)(1), we hold that
she does not qualify for "innocent spouse" relief and is
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therefore jointly and severally liable for the deficiencies in
tax, additions to tax, and penalties for each taxable year at
issue. However, petitioner is not liable for any additions to
tax or penalties for fraud.
To reflect the foregoing,
Decision will be
entered under Rule 155.