TAX COURT OPINION

Case: Jeffrey R. Taylor
Docket Number: 3226-06
Judge: Swift
Opinion Type: memo
Filed: 08/13/2008
Pages: 11

T .C . Memo . 2008-19 3 UNITED STATES TAX COURT JEFFREY R . TAYLOR, Petitioner v . COMMISSIONER OF'INTERNAL REVENUE, Responden t Docket No . 3226-0 F1ed ' August 13 ,' 2008 . Jeffrey R . Taylor ; pro' s Shirley . M . Francis .; for respondent . MEMORANDUM FINDINGS OF FACT AND OPINION SWIFT, Judge : The sole issue for decision is whether petitioner is entitled . to relief from joint and several liability under section 6015(b), (c), or (f) with respect to 1986 and 1987 joint Federal income tax deficiencies and additions to tax fo r civil fraud penalties determined by respondent . SERVED AUG 13 2000 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times . FINDINGS OF FACT 1 Some of the facts have been stipulated and are so found . At the time the petition was filed, petitioner resided i n Oregon . In the early 1980s, after receiving a bachelor's degree i n marketing and in political science from the University of Oregon, petitioner and his wife Janet began a .wood importing business through Highline Industrial Supply, Inc . (Highline) ; an Oregon corporation they incorporated . Petitioner and Janet were the sole officers, shareholders, and employees of Highline, and they operated the import business from their home . Highline sold imported wood from Russia to furniture and cabinet manufacturers throughout the United States . In 1986 and 1987 Highline had annual gross sales of approximately $4 million . During 1986 and 1987 petitioner and Janet diverted funds of _Highline to their personal use by writing and signing checks, drawn on Highline's business checking account to pay for persona l items such as automobiles, horses, boats, and jewelry . On their joint Federal income tax return for 1986, petitioner and Janet reported only $94 in interest income, n o wage income, and zero in taxable income . On their joint Federal, income.tax return for .198 .T, - 3 - petitioner and Janet reported $143-in interest" income',- $37,500(cid:127)in wage'income, offsetting adjustments and,deductions, and zero . i n taxable income' . Each year, petitioner prepared his and Janet'-s :',joint,Federal income tax return . -On, their 1986 and 1987 joint Federal-income tax returns, petitioner, .-did -not,report.. as wages,- as :dividends, or, as other income the -funds he and -Janet ''diverted from Highline for' their personal use . Petitioner also prepared Highline's corporate Federal income-tax'return for each year . Respondent's :audit . of . petitioner and .Janet' s,-1986 .:and 1987 joint Federal income tax'returns'was suspended while . reference thereof was madetto respondent' :s, Criminal Investigation Division, and to the"Tax Divsion,of'-the U .S .._ Department of Justice .. On April 14, 199=3', petitioner and Janet were indicted by a Federal grand jury for Max evasion . . Petitioner 'and Janet were charged with knowingly and willful%ly attempting to evade Federal' income taxes for 1986 and-1987 by fi=ling false and fraudulent joint Federal income-tax returns' in vi.olation-of section 7201 . The indictment charged that petitiorier .and :Janett reported taxable income of zero on their-"1986 and 1987 joint Federal income tax, returns, knowing that their .taxable income for 1986 and 1987 was, substantially greater 'than zero . - 4 - , Petitioner, who was represented by counsel, pleaded'guilty to count 2', of the indictment -(namely, to ..willful tax evasion by filing-a false and .fraudulent 1987 return) . As part of, the plea agreement, the other count of the indictment filed agains t petitioner relating, to 1986 was dismissed . On November 12, 1993, petitioner filed,a motion to withdraw his guilty plea, which . was denied, and petitioner was sentenced . . to 3 years of probation and was ordered to .pay $54,088 in restitution and a $1,000 criminal fine . Petitioner then filed a motion in the U .S . District Court for the District .of,Oregon.for a new trial requesting, that he be granted a jury trial on the ground that, his guilty plea was involuntary . The District Court denied petitioner's motion, .; and the U .S . Court of Appeals for the Ninth Circuit affirmed . See United States v . Taylor , 70 F .3d 121 (9th Cir . 1995) (unpublished . . opinion) . Subsequently, the Supreme Court denied petitioner's_petition .for a writ of certiorari . See Taylor v . United States , 517 U .S . 122Z(19,96) . On February 16, 1996, respondent : mailed a notice of deficiency to petitioner and to Janet determining deficiencies and additions to tax in petitioner and Janet's 1986 and 1987 Federal income taxes . The deficiencies included adjustments for unreported wages and constructive- dividends from Highline, as well as section 6653(b) additions to tax .for fraud . 5 - Taylor v . Commr ., Dkt . No . 8493-96' (Tax Deficiencies & Penalties) On May 3, 1996, petitioner petitioned this Court to redetermine respondent's determination of deficiencies and the fraud additions to tax for 1986 and 1987 . On December 2, 1996, respondent filed with this Court a motion for partial summary judgment, requesting that petitioner be collaterally estopped for 1987from denying liability for civil fraud under section 6653(b) because of petitioner's guilty plea to criminal fraud under section 7201 . On February 18, 1997, despite petitioner's claims that his guilty plea was coerced and involuntary, we granted respondent's motion . Taylor v . Commissioner , T .C . Memo . 1997-82 . Petitioner and respondent ultimately reached a settlement as to petitioner's liability for the 1986 and 1987 tax deficiencies and the additions to tax for civil fraud, and on April 18, 1997, a stipulated decision was entered wherein respondent conceded portions of the determined deficiencies and additions to tax for fraud . Petitioner and respondent also agreed that petitioner should receive partial but significant relief under section 6013(e)1 from joint and several liability relating to the tax 1 It appears the sec ..=6013(e) relief petitioner received was based on the fact that most of the checks drawn on Highline's business checking account were-written and signed by Janet . Sec . 6013( e) was repealed and was replaced by the expanded relief from joint liability set forth in sec . 6015, as part of (continued . . .) deficiencies and civil fraud penalties and that after such relief, petitioner .owed deficiencies and additions to tax for fraud .for 1986 and 1987 in-the following reduced amounts . Year Deficiency 6653 (b) (1) (A) 6653 (b) (1) (B ) Additions to Ta x Sec ., Sec . 1986 1987 $ 1,424 16,896 $1,50 0 5,81 2 * The additions to tax under sec . 6653(b)(1)(B) consist of 50 percent of the interest payable under sec . 6601 with respect to the portion of the underpayments which is attributable to fraud, which by settlement was determined to be $2,000 and $7,750 for 1986 and 1987, respectively . Hereinafter we refer to the above tax deficiencies and additions to tax reflected in the above settlement as the remaining tax deficiencies and penalties . On January 22, 1999, petitioner filed a motion for leave to file a motion to vacate the above April 18, 1997, stipulated decision which we denied on February 10, 1999 . '( . . .continued) the Internal Revenue Service Restructuring and Reform Act of 1998, Pub . L . 105-206, sec . 3201(a), 112 Stat . 734 . Sec . 6015 was given retroactive effect to the extent that it was made applicable to any liability for tax-arising on or before July 22, 1998, but remaining unpaid as :of such date, and to any liability for tax arising after July 22, 1998 . 740 . Id . sec . 3201(g), 112 Stat . - 7 - Taylor v .'Commr ., Dkt . No . 15544-98 (Interest Abatement Case ) On September,21, 1998 ., petitioner filed another petition with this Court requesting abatement . of interest relating to petitioner"'and Janet's 1986 and 1987 tax deficiencies . We concluded that petitioner was not entitled to an .=abatement of interest relating to those years . Taylor vCommissioner, 113 T .C . 206. (1999), affd . 9 Fed .'Appx . 700 (9th .Cir . 2001) . Taylor v . Commr ., Dkt . No . 3226-06 .(The Instant Case ) On or about September 30, 2002, petitioner filed wit h respondent a Form 8857, Request for Innocent Spouse Relief, in which petitioner claimed that he .was unaware of th e understatements of tax relating to the 1986 and 1987 joint Federal income tax returns and sought additional relief unde r section 6015(b), (c), and (f) with regard to the remaining ta x deficiencies and penalties . On November 21, 2005, respondent mailed to petitioner a notice of determination denying petitioner's request for the additional requested innocent spouse relief . .OPINIO N Generally, . taxpayers filing .-joint Federal income tax .returns are jointly'liable for taxes reported due thereon . Sec . 6013 (d) (3) . -,Petitioner argues that he is entitled to relief from joint liability under section 6015(b), (c), or (f) . To qualify for relief under section 6015(b), among other things, a requesting spouse must establish that there,was an understatement of tax attributable to erroneous items of the nonrequesting spouse and that at the time of signing the return the requesting spouse did not know, .and .had no reason to know, of the understatement or the .extent of ; the, understatement . Se c 6015 (b) (1) (B) , (C) , (2) . Under section 6015(c), among other things, a requesting spouse may receive relief from joint and several liability to the extent of the portion of the income tax deficiency allocable to the nonrequesting spouse . Cheshire v . Commissioner , 115 T .C . 183, 193 (2000), affd . 282 F .3d 326 (5th Cir . 2002) . However, if respondent demonstrates by a preponderance of the evidence that the requesting spouse seeking relief under section 6015(c) had actual knowledge, at the time of signing the return, of the items giving rise to a deficiency (or a portion thereof), no relief is available under section 6015(c) . Sec . 6015(c)(3)(C) ; Culver v . Commissioner , 116 T .C . 189, 196 (2001) . The evidence shows that petitioner had actual knowledge of the items that gave rise to the remaining deficiencies and that petitioner had actual knowledge of the existence and extent of the understatements at the time-of signing the 1986 and 1987 joint Federal income tax returns . Indeed, the only reasonable conclusion that can be drawn from the evidence (namely, ,y - 9 .- petitioner''s involvement in Highline, his . preparation of the . Federal income tax returns, his criminal conviction for ta x evasion for 1987, and-the acknowledgment embodied in the stipulated decision in'docket,'No .- 84 .93-96 that'-heowed . . deficiencies and additions-to tax for~fraud'f .or 1986 and 1987) is that petitioner .had actual knowledge of the agreed-upon tax deficiencies and..penalties . .Accordingly petitioner is .not . entitled . to relief under section 6015(b) or .(c) in'addition to the ..relief already granted to him under,- .former section 6013(e) ..°- . Petitioner argues that we :should place-little weight on his conviction for tax evasion,and-on the stipulated .decision in' . docket,No . 8493-96, .wherein petitioner agreed -he isEliable'tfor : tax deficiencies and fraud additions-to tax for ]986-and 1987 . We simply note .that, 'the validity of° petitioner' s-" guilty plea has been-litigated and decided by this ., and other courts . Petitioner also argues that because in docket No . 8493-96 he, was granted partial relief .under .former section 6013 .(e),Iwe are bound under' section . 6015 to grant him the requested additional relief under section 6015(f) . Although section 601 .5 generally makes relief from joint liability more accessible and easierato obtain than former Section 6013'(e) , Culver" y- Commissioner , supr a at 194, we are not obligated to'give additional relief t i petitioner concerning the remaining deficiencies and additions to tax simply because partial relief was granted under section - 10 - 6013(e) . Under section 6015(f) respondent is granted discretion to award additional relief .from joint liability if-the facts and circumstances indicate that it would be inequitable-to hold the requesting spouse liable for a deficiency . Dowell v . Commissioner , T .C . Memo . 2007-326 . In declining to extend additional relief to petitioner under section 6015(f) ., respondent committed no error . Among other-things, in light of petitioner's admission of willful tax evasion for 1987, and petitioner's settlement of, his tax liabilities which included civil fraud„ penalties for 198:6 and 1987, respondent . acted reasonably in determining that petitioner was not eligible for equitable relief under section 6015(f) . See Rev . Proc . 2000-15, sec .°4 .01, 2000,-1 C .B . 447, 448-. We have considered all . arguments made herein, and, to the extent not addressed,' we conclude that they are without merit or are irrelevant . 2 2 Respondent argues alternatively that under .common law principles of res judicata and under sec . 6015(g)(2) petitioner is barred .from requesting relief under sec . 6015 . Specifically, respondent argues that because petitioner filed with this court a motion for leave to vacate the stipulated decision in docket No . 8493-96, petitioner should be treated as having participated meaningfully in a prior proceeding and therefore under sec . 6015(g)(2) no additional relief should be available to petitione r . ) (continued . . I To reflect the foregoing, - 11 - Decision will be entere d for respondent . 2( . Having denied petitioner relie f . . continued ) under sec . 6015(b), under sec . 6015(b), . respondent's alternative argument under sec . 6015(g)(2) . (c), or (f) . (c), . .and (f), we need not conside r