1 Cases of the following petitioner are consolidated

herewith: Mary E. Callahan, docket Nos. 10257-04 and 23879-04.

T.C. Memo. 2007-301

UNITED STATES TAX COURT

DANIEL G. CALLAHAN, ET AL.,1 Petitioners v. COMMISSIONER

OF INTERNAL REVENUE, Respondent

Docket Nos. 10256-04, 10257-04, Filed October 2, 2007.

23879-04.

Daniel G. and Mary E. Callahan, pro se.

James M. Klein and Mark J. Miller, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GALE, Judge: Respondent determined the following

deficiencies in, and additions to, petitioners’ Federal income

tax: 
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Daniel G. Callahan Additions to Tax

Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1997 $2,936 $734.00 $157.07

1998 3,064 766.00 140.23

1999 3,086 771.50 149.34

Mary E. Callahan Additions to Tax

Year Deficiency Sec. 6651(a)(1) Sec. 6654(a)

1997 $9,971 $1,337.75 $258.82

1998 9,994 1,330.50 219.77

1999 10,509 1,373.00 238.80

2002 10,433 3,129.90 348.64

Unless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as in effect for the years in

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

These cases were consolidated for trial, briefing, and

opinion. At trial, respondent moved to amend the pleadings to

conform to the proof, to the effect that petitioner Mary E.

Callahan (Mrs. Callahan) was required to report one-half of

petitioner Daniel G. Callahan’s (Mr. Callahan) income of $41,290

for 2002. We must decide the following issues: (1) Whether

petitioners had unreported income in 1997, 1998, 1999, and 2002,

as respondent determined; (2) whether petitioners must split

their income in each year at issue on account of Wisconsin’s

marital property laws; (3) whether petitioners are liable for

additions to tax under section 6651(a)(1) for those years; (4)
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whether petitioners are liable for additions to tax under section

6654 for those years; and (5) whether petitioners are liable for

penalties under section 6673(a)(1).

FINDINGS OF FACT

Some of the facts have been stipulated and are incorporated

by this reference. At the time the petitions were filed,

petitioners resided in Wisconsin.

Mr. Callahan and Mrs. Callahan were married in 1990 and have

resided together in the same household in Wisconsin since that

time, through the years in issue. Petitioners do not have a

marital property agreement and have not opted out of the marital

property laws of Wisconsin.

Mrs. Callahan provided medical services at a medical group

in Racine, Wisconsin. For her services as a nurse practitioner,

she received payments of $51,117, $51,092, $53,630, and $59,656

in 1997, 1998, 1999, and 2002, respectively. She received

dividend income of $151, $177, $210, and $221 in 1997, 1998,

1999, and 2002, respectively, as well as interest income of $26

in 1999 and $26 in 2002.

Mr. Callahan received payment of $1,000 from Idea Consulting

in 1998, as well as interest income of $36 and $30 in 1997 and

1998, respectively. He also received $41,290 as compensation for

his services from J. Tyson & Associates in 2002.
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2 Respondent acknowledges that the notices of deficiency at

issue create a “whipsaw” for each petitioner. He concedes that

in the event the Court finds that Wisconsin marital property law

gives each petitioner a present undivided one-half interest in

the income of his or her spouse earned during the years in issue,

each petitioner is not taxable on the half of his or her income

in which his or her spouse holds the aforementioned interest. 

Instead the income is attributable to the spouse who holds the

present undivided interest in it.

Petitioners did not file Forms 1040, U.S. Individual Income

Tax Return, for any of the taxable years 1997, 1998, 1999, and

2002. The last time petitioners filed Federal income tax returns

before the years at issue was in 1993. Petitioners made no

estimated tax payments for any of the years at issue.

OPINION

Respondent determined that petitioners had unreported income

in the aforementioned amounts for 1997, 1998, and 1999, as well

as additions to tax under section 6651(a)(1) for failing to file

returns and under section 6654 for failing to make estimated tax

payments for each of those years. Respondent determined

deficiencies for each petitioner based on the full amount of his

or her income earned in each year, as well as half of the income

earned by each petitioner’s spouse in that year.2 Respondent

also determined that Mrs. Callahan had unreported income in 2002

as well as additions to tax under sections 6651(a)(1) and 6654. 

Respondent also asserted, in a motion to amend the pleadings,

that she had marital income equal to one-half of Mr. Callahan’s

compensation for services in that year.
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3 Mr. Callahan’s 2002 taxable year is not at issue in this

case.

Respondent’s Motion To Amend Pleadings

At trial, respondent moved to amend the pleadings to conform

them to the evidence adduced concerning Mr. Callahan’s income in

2002 and to increase Mrs. Callahan’s deficiency for 2002, on

account of her marital share of Mr. Callahan’s income in that

year.

Whether a motion seeking an amendment of the pleadings

should be granted is within the discretion of the Court. 

Commissioner v. Estate of Long, 304 F.2d 136 (9th Cir. 1962). 

Leave to amend the pleadings to conform to the proof shall be

given freely when justice so requires and, where the nonmoving

party has objected to the evidence giving rise to the motion to

amend, the nonmoving party has failed to satisfy the Court that

the admission of the evidence would prejudice such party. Rule

41(b)(2).

Respondent seeks to amend the pleadings to assert that Mrs.

Callahan had marital income to the extent of one-half of Mr.

Callahan’s $41,290 in compensation for services from J. Tyson &

Associates in 2002.3 Petitioners did not object to the admission

of the evidence concerning Mr. Callahan’s 2002 income; indeed,

they stipulated that he received it. Moreover, petitioners were
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4 While under Rule 142(a) respondent bears the burden of

proof with respect to Mrs. Callahan’s increased 2002 deficiency

resulting from his amendment of the pleadings, that burden is of

no consequence because petitioners have stipulated the income

giving rise to the deficiency. 

5 In enacting the marital property statute, the Wisconsin

legislature intended that marital property be a form of community

property. See Wis. Stat. Ann. sec. 766.001(2) (West 2001). The

Commissioner treats it as such for Federal income tax purposes. 

Rev. Rul. 87-13, 1987-1 C.B. 20.

directed to address the issue of respondent’s motion to amend the

pleadings on brief but failed to do so.

Petitioners have identified no prejudice, and we fail to see

any. Mrs. Callahan’s 2002 taxable year has at all times been at

issue in this proceeding, and she was on notice by virtue of the

notice of deficiency issued to her for 1997 and 1998, as well as

respondent’s pretrial memorandum, that respondent intended to

allocate marital income to her on account of Wisconsin marital

property law. We conclude that amendment of the pleadings should

be allowed as sought by respondent.4

Wisconsin Marital Property Law

Under Wisconsin law, all income earned during marriage by

spouses domiciled in Wisconsin is presumed to be marital

property.5 Wis. Stat. Ann. sec. 766.31(4), 766.01(8) (West

2001). Marital property includes spousal wages, dividends,

interest, and economic benefits attributed to a spouse. Wis.

Stat. Ann. sec. 766.01(10); Park Bank-West v. Mueller, 444 N.W.2d

754, 759 (Wis. Ct. App. 1989). Each spouse has a present
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6 When a separate return has been filed, married taxpayers

forfeit their right to file a joint return for the relevant year

upon the issuance of a notice of deficiency to, and the filing of

a petition in this Court by, either spouse. Sec. 6013(b)(2)(B).

undivided one-half interest in the other spouse’s income earned

during the marriage. Wis. Stat. Ann. sec. 766.31(1)-(2); see

Gerczak v. Estate of Gerczak, 702 N.W.2d 72, 78 (Wis. Ct. App.

2005); Park Bank-West v. Mueller, supra. Spouses may reclassify

marital property as individual property by, inter alia, a marital

property agreement. Wis. Stat. Ann. sec. 766.31(10).

Petitioners were married during the years at issue and

maintained a residence in Wisconsin. We are therefore satisfied

that they were domiciled in Wisconsin; they have not maintained

otherwise. See Wisconsin v. Corey J.G., 572 N.W.2d 845, 853

(Wis. 1998). Petitioners have not attempted to reclassify their

marital property as individual property. Accordingly, they each

hold an undivided one-half interest in all items of income at

issue in this case.

When a husband and wife who are domiciled in a community

property State file separate returns or no returns, any marital

property income must be split between them.6 United States v.

Mitchell, 403 U.S. 190, 196 (1971); Hopkins v. Bacon, 282 U.S.

122, 127 (1930); Poe v. Seaborn, 282 U.S. 101 (1930); Johnson v.

Commissioner, 72 T.C. 340, 343 (1979). Because all items of

income at issue in this case are marital property and petitioners
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did not file returns for the years at issue, all of these items

of income must be equally split between them.

Unreported Income

Petitioners have admitted the receipt of each item of income

respondent determined. Their arguments that this income was not

taxable are frivolous tax-protester arguments that we need not

“refute * * * with somber reasoning and copious citation of

precedent; to do so might suggest that these arguments have some

colorable merit.” Crain v. Commissioner, 737 F.2d 1417, 1417

(5th Cir. 1984). After splitting each item of income at issue

equally between petitioners and attributing half of Mr.

Callahan’s 2002 income to Mrs. Callahan, we conclude that

petitioners had unreported income in the following amounts:

Mr. Callahan

Year

Compensation for

Services

Dividends &

Interest Marital Income

1997 -0- $18 $25,634

1998 $500 15 25,635

1999 -0- -0- 26,933

Mrs. Callahan

Year

Compensation for

Services

Dividends &

Interest Marital Income

1997 $25,559 $76 $18

1998 25,546 89 515

1999 26,815 118 -0-

2002 29,828 124 20,645
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Additions to Tax

Under section 7491(c), respondent has the burden of

production with respect to petitioners’ liability for the

additions to tax under sections 6651(a)(1) and 6654. Respondent

must accordingly offer sufficient evidence to indicate that it is

appropriate to impose each addition. See Higbee v. Commissioner,

116 T.C. 438, 446 (2001). Once this burden is met, petitioners

bear the burden of proving error in the determination, including

evidence of exculpatory factors. Id. at 446-447.

A. Section 6651(a)(1) Additions

Section 6651(a)(1) provides for an addition to tax for a

taxpayer’s failure to file a required return on or before the due

date, including extensions. Respondent determined that Mrs.

Callahan is liable for section 6651(a)(1) additions for 1997,

1998, 1999, and 2002 and determined that Mr. Callahan is liable

for section 6651(a)(1) additions for 1997, 1998, and 1999. 

Petitioners have admitted receiving income during each of

these years in amounts sufficient to obligate them to file

Federal income tax returns. See sec. 6012. Petitioners admitted

that they did not file returns for any of their years in issue. 

Therefore, respondent has met his burden of production under

section 7491(c).

Petitioners have offered no evidence of reasonable cause for

their failure to file. Accordingly, we sustain respondent’s
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determination that petitioners are liable for additions to tax

under section 6651(a)(1) for each of their years in issue.

B. Section 6654 Additions

Respondent determined that Mrs. Callahan is liable for

additions to tax pursuant to section 6654 for failure to pay

estimated tax for 1997, 1998, 1999, and 2002 and determined that

Mr. Callahan is liable for additions pursuant to section 6654 for

1997, 1998, and 1999.

An individual taxpayer generally has an obligation to pay

estimated tax for a particular year only if he or she has a

“required annual payment” for that year. Sec. 6654(d). A

“required annual payment” is equal to the lesser of (1) 90

percent of the tax shown on the individual’s return for that year

(or, if no return is filed, 90 percent of his or her tax for such

year), or (2) if the individual filed a return for the

immediately preceding year, 100 percent of the tax shown on that

return. Sec. 6654(d)(1). Respondent’s burden of production

under section 7491(c) for the section 6654 addition to tax

requires him to produce evidence that petitioners had required

annual payments for the years in issue. See Wheeler v.

Commissioner, 127 T.C. 200, 210-212 (2006).

As our deficiency determinations establish, petitioners had

tax due for each of their years in issue. Since petitioners

admitted they had not filed returns since 1993, they did not file
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for any year that immediately preceded any of the years at issue,

nor did they pay any estimated tax for their years at issue. We

accordingly conclude that respondent has met his burden of

production regarding the section 6654 additions with sufficient

evidence to indicate that petitioners had required annual

payments for each of their years at issue.

We do not find that petitioners are entitled to any of the

statutorily provided exceptions to the section 6654 addition to

tax or that respondent’s determinations were incorrect. 

Accordingly, we sustain the additions under section 6654 for each

of petitioners’ years at issue.

Section 6673 Penalty

Respondent has moved for a penalty under section 6673(a)(1). 

Whenever it appears to the Court that proceedings have been

instituted or maintained primarily for delay or the taxpayer’s

position in such proceedings is frivolous or groundless, the

Court may require the taxpayer to pay a penalty not in excess of

$25,000. Sec. 6673(a)(1).

Petitioners presented no substantive evidence in support of

their positions. Instead, they advanced numerous frivolous taxprotester arguments, such as claiming that labor is property that

gives rise to an “even” exchange when it is traded for money and

that income is not defined in the Internal Revenue Code. 

Petitioners were warned at trial that their arguments were
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frivolous and could subject them to penalties under section 6673. 

Petitioners were directed to address in their brief the question

of whether a section 6673 penalty should be imposed on them. 

They failed to do so, instead persisting in advancing frivolous

tax-protester arguments.

Petitioners’ conduct in this case has wasted the time and

resources of this Court. Their disregard of the Court’s warning

indicates that stronger deterrents are appropriate. 

Consequently, the Court will exercise its discretion to impose a

penalty of $1,500 upon each petitioner pursuant to section

6673(a)(1).

To reflect the foregoing,

Appropriate orders and

decisions will be entered under

Rule 155.