Source: https://law.justia.com/cases/federal/appellate-courts/F3/112/1258/585423/
Timestamp: 2020-04-02 20:19:03
Document Index: 442852060

Matched Legal Cases: ['§ 6013', '§ 6013', '§ 6013', '§ 6013', '§ 6013', '§ 6013', '§ 6013', '§ 6013', '§ 1366', '§ 1366', '§ 1366', '§ 6013', '§ 6013', '§ 6653', '§ 6653', '§ 6653', '§ 6661', '§ 6661', '§ 6661']

Rebecca Jo Reser, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 112 F.3d 1258 (5th Cir. 1997) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fifth Circuit › 1997 › Rebecca Jo Reser, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee
Rebecca Jo Reser, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 112 F.3d 1258 (5th Cir. 1997)
US Court of Appeals for the Fifth Circuit - 112 F.3d 1258 (5th Cir. 1997) May 12, 1997
The Code and the regulations instruct that inequity is to be determined on the basis of all of the facts and circumstances.53 53 The most important factor in determining inequity is whether the spouse seeking relief "significantly benefitted" from the understatement of tax.54 The regulations provide that the benefit may be direct or indirect but caution that normal support is not a benefit.55
Section 6653(a) (1) of the Code imposes an addition to tax equal to 5% of the entire underpayment if any portion of such underpayment is due to negligence.64 " 'Negligence' includes any failure to make a reasonable attempt to comply with the tax code, including the lack of due care or the failure to do what a reasonable or ordinarily prudent person would do under the circumstances."65 The taxpayer bears the burden of establishing the absence of negligence.66
The relevant inquiry for the imposition of a negligence penalty is whether the taxpayer acted reasonably in claiming the loss.67 The Tax Court found that Reser's reliance on Stewart Goodson, the CPA who prepared the 1988 joint return, was not reasonable, as based on inaccurate information, in light of its decision that there was no separate loan from Don to DRPC. We find clear error in this conclusion of the Tax Court. For the same reasons that we concluded that Reser did not have reason to know of the substantial understatement on the 1987 joint return,68 we conclude that she acted reasonably in relying on the professionals who prepared the 1988 joint return. In fact, but for her failure to meet a technical requirement, she would have been an innocent spouse for purposes of the 1988 joint return. Goodson and Bryan, two CPA's at a national accounting firm, both agreed that the Resers' basis in DRPC was sufficient to claim the losses as deductions. As we stated in Chamberlain v. Commissioner,69 " [t]o require the taxpayer to challenge the [expert], to seek a 'second opinion,' or try to monitor [the expert] on the provisions of the Code himself would nullify the very purpose of seeking the advice of a presumed expert in the first place."70 Furthermore, Reser was wholly unaware of Don's belated attempt to recast the Frost Bank loan to his tax advantage.
See 26 U.S.C. § 6013(e) (1) (flush language) (1994). The phrase "flush language" is a fairly well-understood term of statutory construction which is used to refer to language that is written from margin to margin and that applies to an entire statutory section as opposed to language that is indented to designate applicability limited to a particular subsection or sub-subsection
For the 1988 joint return, Reser failed to meet the requirement that the liability be greater than 25% of the adjusted gross income for the preadjustment year. See 26 U.S.C. § 6013(e) (4) (B) (1994)
Park v. Commissioner, 25 F.3d 1289, 1291 (5th Cir.), cert. denied, 513 U.S. 1061, 115 S. Ct. 673, 130 L. Ed. 2d 606 (1994)
26 U.S.C. § 6013(a) (1994)
26 U.S.C. § 6013(d) (3) (1994); Park, 25 F.3d at 1292
26 U.S.C. § 6013(e) (1) (flush language) (1994)
26 U.S.C. § 6013(e) (1) (1994); See also Park, 25 F.3d at 1292; Buchine, 20 F.3d at 180
Park, 25 F.3d at 1292; Bokum v. Commissioner, 94 T.C. 126, 138, 1990 WL 17262 (1990), aff'd on other grounds, 992 F.2d 1132 (11th Cir. 1993)
The grossly erroneous items must be attributable to the other spouse. See 26 U.S.C. § 6013(e) (1) (B) (1994). As the Commissioner does not contest that the grossly erroneous items were Don's, we will assume that this is not an issue
26 U.S.C. § 6013(e) (2) (1994) (emphasis added)
Bokum, 94 T.C. at 142 (quoting Belk v. Commissioner, 93 T.C. 434, 442, 1989 WL 112763 (1989)); Douglas v. Commissioner, 86 T.C. 758, 762-63, 1986 WL 22118 (1986); Purcell v. Commissioner, 826 F.2d 470, 475-76 (6th Cir. 1987), cert. denied, 485 U.S. 987, 108 S. Ct. 1290, 99 L. Ed. 2d 500 (1988)
26 U.S.C. § 1366(a) (1994); Underwood v. Commissioner, 535 F.2d 309, 310 (5th Cir. 1976)
26 U.S.C. § 1366(a) (1994); Underwood, 535 F.2d at 310
26 U.S.C. § 1366(d) (1994)
Harris v. United States, 902 F.2d 439, 443 (5th Cir. 1990); Underwood, 535 F.2d at 311-12; Estate of Leavitt v. Commissioner, 875 F.2d 420, 422 (4th Cir.), aff'g, 90 T.C. 206, 1988 WL 8227 (1988), cert. denied, 493 U.S. 958, 110 S. Ct. 376, 107 L. Ed. 2d 361 (1989); Selfe v. United States, 778 F.2d 769, 772 (11th Cir. 1985)
See e.g. Underwood, 535 F.2d at 312; Harris, 902 F.2d at 445; Leavitt, 875 F.2d at 422; Brown v. Commissioner, 706 F.2d 755, 756 (6th Cir. 1983); Uri v. Commissioner, 949 F.2d 371 (10th Cir. 1991); Roesch v. Commissioner, 57 T.C.M. (CCH) 64, 65 (1989), aff'd, 911 F.2d 724 (4th Cir. 1990). But see Selfe, 778 F.2d at 772-75 (shareholder's guarantee is sufficient to increase basis in S corporation if the facts demonstrate that, in substance, shareholder borrowed funds and subsequently advanced them to corporation; remanding to Tax Court to determine whether loan from bank to S corporation was in reality a loan to shareholder). We are not bound by the Eleventh Circuit's decision
Park v. Commissioner, 25 F.3d 1289, 1291 (5th Cir. 1994); McKnight v. Commissioner, 7 F.3d 447, 450 (5th Cir. 1993)
Harris, 902 F.2d at 443 (citing Don E. Williams Co. v. Commissioner, 429 U.S. 569, 570-81, 97 S. Ct. 850, 856-57, 51 L. Ed. 2d 48 (1977); Commissioner v. Nat'l Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149, 94 S. Ct. 2129, 2137, 40 L. Ed. 2d 717 (1974)). In some circumstances, however, the IRS may disregard form and recharacterize a transaction by looking to its substance. Harris, 902 F.2d at 443 (citing Higgins v. Smith, 308 U.S. 473, 60 S. Ct. 355, 84 L. Ed. 406 (1940)). See also Uri v. Commissioner, 949 F.2d 371, 373 n. 4 (10th Cir. 1991). For example, in Blum v. Commissioner, 59 T.C. 436, 440, 1972 WL 2479 (1972), the Tax Court recognized an exception that permits a shareholder to question a transaction's form when he argues that his guaranty of a corporate debt should be recast as an equity investment on his part. The Tax Court later clarified its decision, however, noting that the Blum court never reached the debt/equity issue because the taxpayer failed to carry his burden of proving that the loan, in substance, was made to him and not to the corporation. Estate of Leavitt v. Commissioner, 90 T.C. 206, 215, 1988 WL 8227 (1988). In affirming the Tax Court, the Fourth Circuit stated that the Code's provisions limiting the basis of a subchapter S shareholder to his corporate investment or outlay could not be circumvented through the use of debt/equity principles. Estate of Leavitt v. Commissioner, 875 F.2d 420 (4th Cir.), cert. denied, 493 U.S. 958, 110 S. Ct. 376, 107 L. Ed. 2d 361 (1989). In the instant case, in which Don failed to prove that the bank, in substance, loaned the money to him and not to DRPC, we will not look behind the form and structure of the transaction in an attempt to recharacterize it as an economic outlay. See Harris, 902 F.2d at 443
26 U.S.C. § 6013(e) (1) (C) (1994)
Park v. Commissioner, 25 F.3d 1289, 1294 (5th Cir.), cert. denied, 513 U.S. 1061, 115 S. Ct. 673, 130 L. Ed. 2d 606 (1994); Sanders v. United States, 509 F.2d 162, 169 (5th Cir. 1975); Hayman v. Commissioner, 992 F.2d 1256, 1261 (2d Cir. 1993); Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991); Guth v. Commissioner, 897 F.2d 441, 444 (9th Cir. 1990); Quinn v. Commissioner, 524 F.2d 617, 626 (7th Cir. 1975)
See Bliss v. Commissioner, 59 F.3d 374, 378 n. 1 (2d Cir. 1995); Hayman v. Commissioner, 992 F.2d 1256, 1261 (2d Cir. 1993); Friedman v. Commissioner, 53 F.3d 523, 530 (2d Cir. 1995); Resser v. Commissioner, 74 F.3d 1528, 1535-36 (7th Cir. 1996); Erdahl v. Commissioner, 930 F.2d 585, 589 (8th Cir. 1991); See also Kistner v. Commissioner, 18 F.3d 1521, 1527 (11th Cir. 1994) (citing Price and Erdahl with approval)
94 T.C. 126, 1990 WL 17262 (1990), aff'd on other grounds, 992 F.2d 1132 (11th Cir. 1993)
The Tax Court recently adhered to its position in Bellour v. Commissioner, 69 T.C.M. (CCH) 3010 (1995) (denying innocent spouse relief to a wife who knew of the transaction for which a grossly erroneous tax deduction was taken on her joint return but not of the tax consequences of that transaction). The Tax Court acknowledges, however, that it will follow Price in cases appealable to the Ninth Circuit. See Bokum, 94 T.C. at 151 (citing Golsen v. Commissioner, 54 T.C. 742, 756-57, 1970 WL 2191 (1970), aff'd, 445 F.2d 985 (10th Cir.), cert. denied, 404 U.S. 940, 92 S. Ct. 284, 30 L. Ed. 2d 254 (1971)). Presumably, the Golsen rule applies to Tax Court cases appealable to the other circuits that have followed Price
"As the Seventh Circuit stated: ' [t]he knowledge contemplated by [section 6013(e) ] is not knowledge of the tax consequences of a transaction but rather knowledge of the transaction itself.' " Bokum, 94 T.C. at 152-53 (quoting Purcell v. Commissioner, 826 F.2d 470, 474 (6th Cir. 1987), cert. denied, 485 U.S. 987, 108 S. Ct. 1290, 99 L. Ed. 2d 500 (1988) (quoting Quinn v. Commissioner, 524 F.2d 617, 626 (7th Cir. 1975)))
See Resser v. Commissioner, 74 F.3d 1528 (7th Cir. 1996)
These include (1) the spouse's level of education, (2) the spouse's involvement in the family's business and financial affairs, (3) the presence of expenditures that appear lavish or unusual when compared to the family's past levels of income, standard of living, and spending patterns; and (4) the culpable spouse's evasiveness and deceit concerning the couple's finances. Id. at 965 (citing Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989))
25 F.3d 1289 (5th Cir.), cert. denied, 513 U.S. 1061, 115 S. Ct. 673, 130 L. Ed. 2d 606 (1994). In Park, we did not address whether the two approaches actually espoused different principles. Id. at 1299 n. 3. See also Price, 887 F.2d at 963 n. 9, n. 10 (noting the functional similarity between the two tests). Again we leave that question for another day
Park, 25 F.3d at 1298 (citing Sanders v. U.S., 509 F.2d 162, 167 (5th Cir. 1975)). See also Price, 887 F.2d at 965 and Bokum, 94 T.C. at 148
Friedman v. Commissioner, 53 F.3d 523, 531 (2d Cir. 1995)
See Price, 887 F.2d at 965; Stevens v. Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989); Erdahl v. Commissioner, 930 F.2d 585, 590-91 (8th Cir. 1991); Friedman, 53 F.3d at 531; Resser v. Commissioner, 74 F.3d 1528, 1536 (7th Cir. 1996); Bliss v. Commissioner, 59 F.3d 374, 378 (2d Cir. 1995)
Hayman v. Commissioner, 992 F.2d 1256, 1262 (2d Cir. 1993); Stevens, 872 F.2d at 1506; Levin v. Commissioner, 53 T.C.M. (CCH) 6 (1987); Cohen v. Commissioner, 54 T.C.M. (CCH) 944 (1987)
26 U.S.C. § 6013(e) (1) (D) (1994)
Buchine v. Commissioner, 20 F.3d 173, 181 (5th Cir. 1994)
Id. A transfer of property not traceable to items omitted from income does not constitute a benefit. Ferrarese v. Commissioner, 66 T.C.M. (CCH) 596 (1993), aff'd, 43 F.3d 679 (11th Cir. 1994)
Stiteler v. Commissioner, 69 T.C.M. (CCH) 2975 (1995), aff'd, 108 F.3d 339 (9th Cir. 1997)
Purificato v. Commissioner, 64 T.C.M. (CCH) 942 (1992), aff'd, 9 F.3d 290 (3d Cir. 1993), cert. denied, 511 U.S. 1018, 114 S. Ct. 1398, 128 L. Ed. 2d 71 (1994)
Sanders v. U.S., 509 F.2d 162, 167 n. 16 (5th Cir. 1975)
As we have concluded that Reser is an innocent spouse for purposes of the 1987 joint return, she is automatically relieved of liability for the 1987 negligence penalty. Therefore, we need not address whether the Tax Court erroneously calculated that penalty. In addition, we note that the Tax Court's decision did not charge Reser with liability for the 50% interest penalty for the 1988 joint return. See 26 U.S.C. § 6653(a) (1) (B) (1988). Thus for the 1988 joint return only the 5% negligence penalty is before us
Westbrook v. Commissioner, 68 F.3d 868, 880 (5th Cir. 1995); Portillo v. Commissioner, 932 F.2d 1128, 1135 (5th Cir. 1991), rev'd on other grounds, 988 F.2d 27 (5th Cir. 1993)
26 U.S.C. § 6653(a) (1) (1988)
See 26 U.S.C. § 6653(a) (3) (1988); Durrett v. Commissioner, 71 F.3d 515, 518 (5th Cir. 1996); Westbrook, 68 F.3d at 880 (quoting Heasley v. Commissioner, 902 F.2d 380, 383 (5th Cir. 1990))
Chamberlain v. Commissioner, 66 F.3d 729, 733 (5th Cir. 1995)
See supra at Part II(A) (4)
Id. at 732 (quoting United States v. Boyle, 469 U.S. 241, 251, 105 S. Ct. 687, 692-93, 83 L. Ed. 2d 622 (1985))
26 U.S.C. § 6661(a) (1988). That section also provides for a reduction of the understatement if there was substantial authority for the taxpayer's treatment of the item causing the understatement. 26 U.S.C. § 6661(b) (2) (B) (i) (1988). The Tax Court concluded that there was no substantial authority for Don to increase his basis in DRPC by the amount of the Frost Bank loan proceeds, and we find no error in this determination. The only authority for allowing a shareholder to increase his basis in a corporation when he guarantees a debt of the corporation is the Eleventh Circuit's decision in Selfe v. U.S., 778 F.2d 769 (11th Cir. 1985). But we are not bound by another circuit's decision. Furthermore, the Tax Court rejected that case in Estate of Leavitt v. Commissioner, 90 T.C. 206, 1988 WL 8227 (1988) (decided February 1988), aff'd, 875 F.2d 420 (1989) (decided May 1989), well over a year before the Resers filed their 1988 joint return (filed October 1989)
26 U.S.C. § 6661(c) (1988)