RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 07a0473p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT _________________

HOMER L. RICHARDSON and GLORIA M.

RICHARDSON,

Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

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No. 06-1963

On Appeal from the United States Tax Court.

Nos. 03-16794; 03-16795.

Argued: October 22, 2007

Decided and Filed: December 11, 2007 

Before: MARTIN, GIBBONS, and SUTTON, Circuit Judges.

_________________

COUNSEL

ARGUED: Robert Alan Jones, Las Vegas, Nevada, for Petitioners. Andrea R. Tebbets, UNITED

STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondent. ON BRIEF: Robert

Alan Jones, Las Vegas, Nevada, for Petitioners. Andrea R. Tebbets, Joan I. Oppenheimer, UNITED

STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Respondent.

_________________

OPINION _________________

SUTTON, Circuit Judge. This appeal arises from income tax deficiencies and fraud-penalty

assessments levied by the IRS and upheld by the Tax Court. Because the Tax Court did not clearly

err (1) in finding that Homer Richardson fraudulently created sham trusts and underreported the

couple’s income and (2) in finding that Gloria Richardson failed to show that she was entitled to

innocent-spouse relief, we affirm.

I.

Homer and Gloria Richardson spent most of their careers as hardworking and traditional,

though perhaps reluctant, taxpayers. Gloria worked as a medical assistant. Homer, a graduate of

the University of Missouri, managed drug stores for twelve years and ran a tool business for three.

After abandoning the tool business, Homer obtained licenses to sell insurance and securities. 

1
No. 06-1963 Richardson, et al. v. Comm’r Page 2

In late 1995, the Richardsons met representatives of the Aegis Company, who promoted

several business-trust packages and the trusts’ capacities to reduce taxes. Homer set up his own taxreduction trust in August 1996 and that same year began peddling the Aegis trust packages to others.

Homer targeted self-employed insurance agents and conducted informational workshops where he

told attendees they could reduce their taxes by up to 70% if they used the Aegis system. He boasted

that customers “could leave more money for [their] children,” JA 966, and that they “essentially

would become [their] own charit[ies]” using the money in their trust as a “retirement plan,” JA 971.

Homer sold the trust packages for $11,000 apiece, and his success in marketing them generated

considerable income—gross receipts of $516,309 in 1996 and $455,750 in 1997.

In the face of this new wealth, the Richardsons created two new trusts for themselves, the

HG Asset Management Company (the “business trust”) and the HG Richardson Charitable Trust (the

“charitable trust”). Although the trust instrument for the charitable trust prohibited transactions that

were not to “charitable organizations” or would otherwise “jeopardize the federal income tax

exemption of [the] trust pursuant to section 501(c)(3) of the Internal Revenue Code,” JA 399–400,

the Richardsons never sought § 501(c)(3) tax-exempt status for the trust. The Richardsons

transferred all of their assets, including their personal residence, and all rights in their future income

to the business trust in exchange for $10 and a full ownership interest in both trusts. The

Richardsons maintained exclusive control over the funds of both trusts, and they named their four

children as successor directors and beneficiaries of the business trust. Homer served as the

Executive Director and Executive Trustee of the business and charitable trusts, and Gloria served

as the Executive Secretary of each trust. 

For the first six days of the trusts’ existence, an Aegis associate served as a director of the

business trust, but the Richardsons were otherwise the trusts’ lone directors and trustees. Neither

trust had any employees, and Homer made all of the day-to-day investment decisions. The

Richardsons’ tax returns say that Gloria spent two hours a week working for the charitable trust. 

Although the Richardsons transferred all of their assets to the business trust, their lifestyle

did not change. In exchange for the Richardsons’ services, the business trust contractually provided

them with housing, transportation, health care, educational and “incidental expenses.” JA 335ae.

The rationale for “maintain[ing] adequate housing,” the contract with the business trust explained,

was that “[t]he law says that the rental value of a residence which is maintained for the convenience

of any employer is generally not taxable.” JA 335ad. In this case, the “adequate housing” the trust

provided was their long-time residence. The couple, in their capacity as trust directors, also

authorized expenditures from the business trust to remodel their home and to purchase a car (titled

in Homer’s name). 

In 1996 and 1997, the Richardsons filed joint personal tax returns and a separate Form 1041

(Income Tax Return for Estates and Trusts) for the business trust. On their personal returns, they

reported only Homer’s insurance-sales receipts ($11,069 for 1996 and $9,694 for 1997), and after

taking the standard deduction and two exemptions, they reported no taxable income for either year.

They opted to report their far more substantial Aegis income (a combined total of nearly one million

dollars of gross income for 1996 and 1997) on the business trust’s returns and managed to reduce

the trust’s taxable income to zero through a series of deductions. The business trust claimed

deductions for the Richardsons’ personal living expenses, their health insurance, their homeowners

insurance, their car payments, depreciation on their residence and certain fiduciary fees. The

business trust then took charitable deductions for the balance of its income ($259,880 in 1996 and

$51,299 in 1997) based upon transfers to the charitable trust. The Richardsons did not file a tax

return in 1996 for the charitable trust, but in 1997 and 1998 they reported the business trust’s

charitable contributions on a Form 990-PF (Return of Private Foundation). 
No. 06-1963 Richardson, et al. v. Comm’r Page 3

The Richardsons had several opportunities to consider the legitimacy of the trusts and their

tax returns. At a “board meeting” on June 27, 1997, they discussed IRS Notice 97–24, which

warned taxpayers about the illegality of abusive trusts. The Notice said that “[a]busive trust

arrangements often use trusts to hide the true ownership of assets and income or to disguise the

substance of transactions,” “frequently involve more than one trust” and “purport to involve

charitable purposes.” I.R.S. Notice 97–24, 1997-16 I.R.B. 6, 6 (Apr. 21, 1997). The IRS Notice

characterized a business trust as abusive when the trust “makes payments to the trust unit holders

or to other trusts created by the owner (characterized either as deductible business expenses or as

deductible distributions).” Id. And it explained the legal principles behind the tax treatment of

abusive trusts and threatened severe penalties against those who utilized or promoted them. Id. at

7. At this board meeting, the Richardsons allegedly consulted legal research about this IRS Notice,

provided by Aegis, and determined that “the Aegis business trust is [not] the kind of trust that is

addressed.” JA 335az.

At some point between 1999 and early 2001, Missy Vaselaney, an attorney hired by some

of Homer’s clients to help them close their Aegis trusts, told Homer that the Aegis schemes were

illegal. Homer dismissed her advice because she “was not a tax expert as far as trusts were

concerned.” JA 903. Although Homer said that he had consulted other lawyers, he never provided

the name of a lawyer not affiliated with Aegis.

On July 13, 1999, the IRS sent the Richardsons a copy of Notice 97–24, advised them that

they might be involved in an abusive trust and gave them an opportunity to correct their tax returns.

The letter asked the Richardsons to send the IRS their trust documents, but instead of complying

with the inquiry Homer questioned the agents’ authority to look into the trusts and failed to attend

an appointment with IRS agents to discuss the trusts. 

After the Richardsons refused to cooperate, the IRS audited them and issued a series of thirdparty summonses to obtain the Richardsons’ financial records. Homer responded to these

summonses by threatening his banks with lawsuits if they disclosed any information, by threatening

to sue an IRS agent because he had “had enough” of the agent’s “lawless disregard for [his] rights,”

JA 505, and by filing a motion to quash in the district court. 

After the district court denied this motion, the civil investigation lay dormant for two years

while the IRS commenced a criminal investigation of the Richardsons. The IRS resumed the civil

investigation in 2002. The Richardsons continued to challenge the IRS agents’ authority to

investigate them and failed to furnish any of the requested documents to the agents. In July, the IRS

issued the Richardsons two deficiency notices ($164,442 for 1996 and $123,848 for 1997), asserting

that the trusts were sham entities, attributing all of the couple’s Aegis income to them and making

the income taxable to them personally. In addition to assessing joint tax liabilities, the notices

charged Homer individually with fraud penalties of $123,077 for his 1996 tax filings and $92,886

for his 1997 tax filings. Through all of this, Homer’s “point of view,” as described by one of his

clients, “was to stick with it and continue to try to fight it because . . . we’re in the tax protesting

mode.” JA 982. 

The Richardsons challenged the deficiency findings in the Tax Court. They argued that

(1) the invalidation of the business trust as a sham entity violated Ohio law and the Tenth

Amendment to the U.S. Constitution; (2) the trusts were not sham entities; (3) the fraud penalty

against Homer was insufficiently supported; (4) the statute of limitations barred the assessment

because there was no fraud; and (5) Gloria was entitled to innocent-spouse relief. The Tax Court

upheld all of the Commisioner’s findings. 
No. 06-1963 Richardson, et al. v. Comm’r Page 4

II.

The Richardsons appeal the tax deficiencies and fraud penalties levied against them.

Because the Tax Court’s fraud, economic-substance and innocent-spouse rulings are factual ones,

we review them for clear error, “giv[ing] deference to the Tax Court’s factual findings and

inferences.” Indmar Prods. Co. v. Comm’r, 444 F.3d 771, 777 (6th Cir. 2006).

A.

The Internal Revenue Code requires taxpayers to report “all income from whatever source

derived,” including “income derived from business” and “[i]ncome from an interest in an estate or

trust.” 26 U.S.C. § 61(a)(2), (15). In determining whether to attribute income to a taxpayer, the

Code elevates substance over form, asking not what the surface of a transaction suggests but what

the economic realities of the transaction show. See Comm’r v. Court Holding Co., 324 U.S. 331,

334 (1945). Because even the most “patriotic” citizens do not have a “duty to increase [their] taxes,”

Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), it “is entirely legal and legitimate” to

minimize taxes through permissible means, Estate of Kluener v. Comm’r, 154 F.3d 630, 634 (6th

Cir. 1998). But if a transaction or entity has no “valid, non-tax business purpose,” id., nominally

uses another person or entity “as a conduit through which to pass title,” Court Holding Co., 324 U.S.

at 334, or “br[ings] about no real change in the economic relation of the [taxpayers] to the income

in question,” Comm’r v. Tower, 327 U.S. 280, 291 (1946), the Commissioner has the authority to

find that the transaction or entity lacks economic substance and disregard it for tax purposes, see

Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1354 (Fed. Cir. 2006) (characterizing the

economic-substance doctrine as “a judicial tool for effectuating the underlying Congressional

purpose that, despite literal compliance with the statute, tax benefits not be afforded based on

transactions lacking in economic substance”).

In ascertaining whether a trust has economic substance, courts look to a variety of factors:

(1) whether the relationship of the grantors to the transferred property changed materially;

(2) whether any independent trustee exists to prevent the grantors from acting solely in their own

interests; (3) whether any economic interest in the trust assets passed to other beneficiaries; and

(4) whether the trust imposes any restrictions on the grantors’ use of the assets. See Markosian v.

Comm’r, 73 T.C. 1235, 1243–44 (1980). Applying these principles, the Tax Court concluded that

the Richardsons’ trusts lacked economic substance, finding that “the relationship of petitioners to

both their physical assets and their income-producing activities remained essentially unchanged”

after the formation of the trusts. JA 1119. 

Ample evidence supports this finding. The Richardsons maintained exclusive control over

the trusts’ assets; they were the trusts’ sole beneficiaries; and the trusts lacked independent trustees.

Most notably, the Richardsons’ use of the trusts’ assets was no more constrained after the creation

of the trusts than it was before their formation: They lived in the same home; they had similar

expenses; and Homer had the same job (a self-employed salesperson). 

So far as the record shows, the business trust also had no “valid, non-tax business purpose.”

Estate of Kluener, 154 F.3d at 634. All that changed after the formation of the trust was the

Richardsons’ tax obligation, which by itself does not suffice to establish a legitimate business

purpose for the trust. The Richardsons, the record shows, used the trust as nothing more than a

“conduit through which to pass title,” Court Holding Co., 324 U.S. at 334, and experienced “no real

change in the[ir] economic relation . . . to the income in question,” Tower, 327 U.S. at 291, even

after the trust ostensibly owned all of their assets and their right to earn income. 

Making matters worse, the Internal Revenue Code expressly bars the types of deductions the

business trust purported to authorize. “[N]o deduction,” the Code says, “shall be allowed for
No. 06-1963 Richardson, et al. v. Comm’r Page 5

personal, living, or family expenses.” 26 U.S.C. § 262(a). The nondeductibility of personal

expenses remains “fundamental to our income tax regime,” Muhich v. Comm’r, 238 F.3d 860, 863

(7th Cir. 2001), prompting courts to be skeptical of efforts to transform a “famil[y’s] expenses into

expenses of trust administration,” id. at 864; see also Harris v. Comm’r, 41 T.C.M. (CCH) 815, 815

(1981) (“To anyone . . . not incorrigibly addicted to the ‘free lunch’ philosophy of life, the entire

[family trust] scheme had to have been seen as a wholly transparent sham.”). 

No less inappropriate was the Richardsons’ use of the charitable trust to deduct the remainder

of their income. Because the Richardsons alone “control[led] the donee” trust, they undertook a

“heavy burden of proving the facts that would entitle them to a charitable deduction.” See Smith v.

Comm’r, 800 F.2d 930, 934 (9th Cir. 1986). To be “charitable,” a contribution must be to an

organization “operated exclusively for religious, charitable, scientific, literary, or educational

purposes” and may not “inure[] to the benefit of any private shareholder” of the recipient

organization. 26 U.S.C. § 170(c)(2)(B), (C) (emphasis added); see also Comm’r v. John Danz

Charitable Trust, 284 F.2d 726, 731 (9th Cir. 1960) (noting that to be tax exempt a trust must be

“organized exclusively for charitable purposes”). “[I]n searching for the intentions or motives

behind the structure of a charitable entity, a court may look beyond the four corners of the creating

instrument and may consider extrinsic evidence on this subject where it is helpful.” Id. at 733.

Considerable evidence shows that the Richardsons “operated” the trusts for less than

charitable purposes and intended the trust funds to “inure” to their own benefit in the end. In his

own words, Homer told potential clients in his promotion materials that they “had to pay out . . . five

percent each year to a charity” from the charitable trust, but other than those payments “you

essentially would become your own charity,” and the charitable trust would become “retirement

income.” JA 971. Establishing retirement income for one’s self, needless to say, is hardly a selfless

and charitable act. The Richardsons nonetheless claim that the trust was a legitimate charitable

entity, relying on the trust instrument, which ostensibly required all trust disbursements to be

charitable, and on several donations to various charities between 1998 and 2002. But the

Richardsons never sought § 501(c)(3) tax-exempt status for the trust, and the sum of charitable

donations given over four years (approximately $54,000) represented only a small percentage of the

“charitable” deductions the Richardsons claimed for the two relevant years—1996 and 1997

($311,179). The relatively modest amounts of these donations—plus the fact that the Richardsons

made many of them after the IRS investigation started—undermine rather than legitimize their

intentions. We agree with the district court that the evidence shows that the couple intended to use

the trust corpus as retirement savings and designed the modest disbursements to give the trust the

veneer, but not the reality, of legitimacy. Just as the initial disbursements made by a typical Ponzi

scheme do not make the investment scheme real, see Wolff v. Cash 4 Titles, 351 F.3d 1348, 1350

n.2 (11th Cir. 2003), so too the Richardsons’ charitable disbursements cannot hide their less-thancharitable purposes nor keep the entire transaction from being disregarded as a sham.

That the trusts were valid under Ohio law, does not make them legitimate for federal income

tax purposes. By adhering to state law in forming a trust, an individual does not necessarily give

it economic substance as a matter of federal law. Just as the world can see through a Potemkin

village, so the Tax Code sees through sham entities in assessing taxes, even though the trusts are

otherwise “valid under state laws.” Tower, 327 U.S. at 291; see also Zmuda v. Comm’r, 79 T.C.

714, 720 (1980) (“[W]e will look through that form . . . regardless of whether the entity has a

separate existence recognized under State law . . . .”). For the same reason that a valid registration

of a name of incorporation under state law does not innoculate it from challenge under the federal

trademark laws, the same is true with respect to state trusts and federal income tax liability. 

The Tenth Amendment does not give the Richardsons any refuge either. The Amendment,

it is true, reserves “[t]he powers not delegated to the United States by the Constitution . . . to the

States.” U.S. Const. amend. X. But after the ratification of the Sixteenth Amendment in 1913, what
No. 06-1963 Richardson, et al. v. Comm’r Page 6

more is there to delegate? The amendment broadly delegates to Congress the “power to lay and

collect taxes on incomes, from whatever source derived.” Id. amend. XVI. And, it is assuredly

“necessary and proper,” id. art. I, § 8, cl. 18, to the administration of that authority to impose

income taxes on transactions according to their substance, not to what state law says about them, cf.

Court Holding Co., 324 U.S. at 334 (“To permit the true nature of a transaction to be disguised by

mere formalisms . . . would seriously impair the effective administration of the tax policies of

Congress.”). 

The Richardsons also have waived any argument that the Commissioner incorrectly

calculated their deficiencies. They provided the Tax Court with “no documentary evidence

whatsoever that would support or corroborate an alternative computation,” JA 1127, and did not

challenge the computations in their Tax Court petition or in their post-trial briefs, see Estate of Quirk

v. Comm’r, 928 F.2d 751, 758 (6th Cir. 1991) (“[W]e should not be considered a ‘second shot’

forum . . . where secondary, back-up theories may be mounted for the first time.”). 

B.

The Richardsons next challenge the Tax Court’s imposition of fraud penalties upon Homer

and the lifting of the statute of limitations for their deficiencies. The Internal Revenue Code

provides that “there shall be added to the tax an amount equal to 75 percent of the portion of [any]

underpayment [of tax required] which is attributable to fraud,” 26 U.S.C. § 6663(a), and that a

deficiency from a “false or fraudulent return with the intent to evade tax . . . may be assessed . . . at

any time,” id. § 6501(c)(1). The Commissioner bears the burden of proving fraudulent intent by

clear and convincing evidence. Conti v. Comm’r, 39 F.3d 658, 664 (6th Cir. 1994).

It is the rare taxpayer who announces to the world his intent to defraud the Federal

Government. In finding tax fraud, courts thus rely as they must upon circumstantial evidence,

United States v. Walton, 909 F.2d 915, 926 (6thCir. 1990), inferring the requisite intent from “any

conduct, the likely effect of which would be to mislead or to conceal,” Spies v. United States, 317

U.S. 492, 499 (1943). We have identified several “badges” of fraud in this setting, including a

taxpayer’s failure to report income, “failure to furnish the Government with access

to . . . records,” “failure to keep adequate books and records” and “concealment of bank accounts

from Internal Revenue agents.” Solomon v. Comm’r, 732 F.2d 1459, 1461–62 (6th Cir. 1984). And

we have found fraud in a wide range of circumstances, including where individuals conceal their

income by dealing in cash, see Conti, 39 F.3d at 665, where they “fail[] to report income,” Solomon, 732 F.2d at 1461, and where people with business experience give “implausible explanations of

conduct,” Walton, 909 F.2d at 926. Although we consider Homer’s intent at the time of filing, see

26 U.S.C. § 6663(a), we may consider his actions after the tax filings to ascertain his earlier state

of mind, see Solomon, 732 F.2d at 1462 (considering the taxpayer’s lack of compliance with the IRS

investigation as evidence of fraud and distinguishing cases where “the taxpayer had cooperated

fully”); see also United States v. Upton, 799 F.2d 432, 433 (8th Cir. 1986) (“Evidence of [a

taxpayer’s] questionable compliance with tax laws, both in the years prior to and subsequent to [the

relevant filing,] is probative of willfulness in the present context.”). 

 The Tax Court affirmed the fraud penalties for six substantive reasons: The implementation

of the trust structure itself was “an affirmative indicium of fraud,” JA 1138; the Richardsons either

“failed to keep” or “elected to conceal” proper financial records, JA 1137; Homer was “not

unsophisticated,” JA 1135; he “fail[ed] to cooperate with tax authorities,” JA 1139; he “fail[ed] to

heed warnings with respect to the improper nature of the Aegis trust structure,” JA 1140; and he

“was an active promoter” in the Aegis trust scheme where “tax reduction was emphasized above all

other advantages,” JA 1136 (emphasis omitted). At the same time, it also determined that Homer’s

“demeanor at trial and disingenuous attempts to distance himself from the Aegis

organization . . . were singularly unconvincing.” Id. The record supports the Tax Court’s finding.
No. 06-1963 Richardson, et al. v. Comm’r Page 7

The Richardsons built their trusts on two premises: Taxpayers may take deductions for

personal expenses, and they may take deductions for payments to a “charitable” trust, the bulk of

which ultimately would serve as their retirement savings. Because the “likely effect of” a scheme

designed to further such improper goals “would be to mislead or to conceal,” Spies, 317 U.S. at 499,

the creation of the trusts suggests fraudulent intent. Also suggesting fraudulent intent is that Homer

did not just participate in his own trusts but actively promoted them to others, minimizing the

possibility that he did not know how they worked or what effect on income reporting they would

have. 

Homer’s behavior after the IRS inquired about the trusts made a bad situation worse. Instead

of complying with the agents’ requests, Homer questioned their authority to inspect the trust

documents, failed to attend meetings with IRS agents, threatened his banks with lawsuits if they

disclosed his financial information, filed motions to quash third-party summonses issued by the

government and threatened to sue an IRS agent. When the IRS began investigating Aegis

customers, Homer went into “tax protesting mode,” JA 982, creating two LLCs, which he promoted

as a way to “take . . . future trust returns ‘off the radar screen’ for audit,” JA 1187. As late as 2002,

the Richardsons continued to obstruct the IRS investigation by challenging the agents’ authority

rather than furnishing the agents with requested documents. 

Nor does the record contain any evidence that Homer relied on independent legal advice in

treating the trusts as bona fide. To the contrary, he failed to heed several warnings that the trusts

rested on thin ice, if indeed they rested on any ice at all. In 1997, the IRS issued Notice 97–24,

which gave a detailed account of “abusive trusts” that in relevant detail well described the Aegis

trust system. See 1997-16 I.R.B. at 6–7 (describing abusive trusts as those that create “deductions

for personal expenses paid by the trust,” “reduce[] or eliminate[] the owner’s self-employment

taxes” and create deductions for trusts with “purported” charitable purposes that are in reality

“principally for the [benefit] of the owner”). Homer nonetheless continued to use the trusts, saying

that “the Aegis business trust is [not] the kind of trust that is addressed,” JA 335az, but offering no

explanation why. After the IRS issued Notice 97–24, Missy Vaselaney, an independent attorney,

told him that the trusts were illegitimate. He ignored her because she “was not a tax expert as far

as trusts were concerned,” JA 903, though he never explained why he never talked to an independent

“tax expert as far as trusts were concerned.” Even after the IRS had begun investigating him, Homer

refused to take anything but an uninformed, self-interested and stubborn look at the validity of the

trusts.

Disclaiming any intent to defraud the government, Homer repeats the refrain that the

business trusts were legitimate under Ohio law. But the legitimacy of a trust under state law does

not prohibit a taxpayer from fraudulently misusing an otherwise-legitimate trust to hide income from

the IRS.

No more persuasive is Homer’s reliance on a legal analysis provided by Aegis, the creator

of the trusts. Doubtless, ignorance is an adequate defense to fraud. But Homer’s active promotion

of the trusts, his intimate familiarity with how they worked and his utter disregard of serial warning

signs of their illegality take the teeth out of any claim that others duped him into forming, to say

nothing of exploiting, the trusts. As the Tax Court correctly concluded, Homer’s attempt to blame

Aegis associates for his actions is “singularly unconvincing.” JA 1136. 

Homer’s residual argument—that he could not have intended to defraud the government

because all of his income was reported to the IRS in some form—also falls short. The fraud penalty

does not have to be based upon any understatement of gross income, as Homer seems to believe.

It is assessed upon the fraudulent “underpayment of tax required.” 26 U.S.C. § 6663(a) (emphasis

added). Because the Tax Court did not clearly err when it found the whole scheme fraudulent, it
No. 06-1963 Richardson, et al. v. Comm’r Page 8

makes no difference that the Richardsons may have reported all of their gross receipts on one form

or another. 

The evidence of Homer’s obstruction and blatant disregard for the illegality of the trust

scheme, coupled with the Tax Court’s finding that his explanations were disingenuous, amply

supports the fraud ruling under a clear error standard of review. The penalties in this case were

justified, and Homer’s fraud relieves the Commissioner of the normal time bar on deficiency

assessments. Homer almost certainly would have saved himself considerable heartache had he

complied with the IRS, but for reasons that to this day remain unclear he chose not to, and

accordingly the Commissioner acted within his authority in imposing the fraud penalties. 

C.

Gloria Richardson also has not shown that she deserves the protection of an innocent spouse.

Because the Richardsons filed joint tax returns for 1996 and 1997, they are jointly and severally

liable for any deficiencies. See 26 U.S.C. § 6013(d)(3). Although Gloria is not liable for Homer’s

fraud penalties, Homer’s fraud lifts the statute of limitations for the “false or fraudulent return.” Id.

§ 6501(c)(1) (emphasis added); see also Ballard v. Comm’r, 740 F.2d 659, 663 (8th Cir. 1984)

(“[S]ection 6501(c)(1) lifts the statute of limitations on tax assessments against both spouses when

they file jointly and one has defrauded the government in the process.”). 

The Tax Code provides a waiver of liability for an innocent spouse where the spouse proves

that she “did not know, and had no reason to know, that there was such understatement” and “taking

into account all the facts and circumstances, it is inequitable to hold the other individual liable for

the deficiency.” 26 U.S.C. § 6015(b)(1)(C), (D). The innocent spouse must prove more than a lack

of “knowledge of the tax consequences” of a transaction; she must meet the more stringent burden

of proving she had no “knowledge of the transaction itself.” Purcell v. Comm’r, 826 F.2d 470, 474

(6th Cir. 1987). 

Gloria cannot carry this burden. Although she claims to have played only a negligible role

in the trust administration, the record is clear that she knew of the transactions. For example: she

was the Executive Secretary of both trusts, signed all of the trust documents, signed the Richardsons’

personal tax returns, had signatory authority over all of the bank accounts and attended all of the

trust board meetings. According to the charitable trust’s tax returns, Gloria also spent two hours a

week fulfilling her duties to the trust. Homer’s testimony at trial that Gloria was unable to work

because she was undergoing chemotherapy during some of this time period does not suffice to

overcome this clear evidence and the suggestion that goes with it—that Gloria was an active

participant in the trust scheme. 

Even had Gloria not known about the transactions (which is not the case), she has failed to

show that it would be “inequitable to hold [her] liable for the deficiency.” 26 U.S.C.

§ 6015(b)(1)(D). As the record confirms, both Richardsons benefitted from their improved financial

situation and would have benefitted substantially in the future if the taxes had remained unpaid.

Under these circumstances, there is nothing inequitable about holding Gloria liable for a tax that she

and Homer should have paid together in the first instance.

* * * * *

While it may be that “nothing can be said to be certain, except death and taxes,” Letter from

Benjamin Franklin to Jean Baptiste Le Roy (Nov. 13, 1789), reprinted in 10 The Writings of

Benjamin Franklin 69 (Albert Henry Smyth ed., 1907), it would also seem to be certain that most

men and women will put both of them off for as long as they can. There is nothing wrong with that.

When it comes to taxes, Learned Hand was right: “Any one may so arrange his affairs that his taxes

shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury;
No. 06-1963 Richardson, et al. v. Comm’r Page 9

there is not even a patriotic duty to increase one’s taxes.” Helvering v. Gregory, 69 F.2d 809,

810 (2d Cir. 1934). But there are legitimate and illegitimate means for making one’s taxes “as low

as possible,” and the federal government’s tax-collection efforts would come to a halt if the

Commissioner and the courts could not ensure the substance of trusts and other tax-minimization

transactions. Just as Judge Hand properly concluded that the underlying transaction in Gregory was

a “sham” for tax purposes, id. at 811 (“To dodge the shareholders’ taxes is not one of the

transactions contemplated as corporate ‘reorganizations.’”), so it is here. 

III.

For these reasons, we affirm.