Opinion ID: 1747715
Heading Depth: 1
Heading Rank: 4

Heading: whether the special master erred in imposing a judgment against mrs. banks for tax liability based upon the difference between what mr. banks would have owed had he filed a joint return with mrs. banks instead of a married filing separately return, where she never had an opportunity to be a party to the tax court proceedings assessing mr. banks' tax liability.

Text: Mrs. Banks points out that the lower court penalized her for refusing to become a party to a federal tax court proceeding where liability had already been assessed without her having any opportunity to participate. As previously noted, her signature would make her fully and equally liable for the entire tax liability. At the time of their divorce and the drafting of the property settlement agreement, Mr. Banks was fully aware that he would have to file tax returns for the years 1982 and following. Mr. Banks received statutory notices of deficiency during the early part of 1991. Petitions to contest were filed in approximately May 1991, and the case docketed for trial February 10, 1992. This was a civil fraud case which in essence doubles the tax, interest and penalties. Rather than go to trial, the case was settled. Three to three-and-a-half days were spent reviewing records with representatives of the IRS. The decision of the Tax Court filed on February 11, 1992, was [p]ursuant to the agreement of the parties... . It is undisputed that the first time Mr. Banks contacted Mrs. Banks was not until 3:15 in the afternoon on February 7, 1992 after he had concluded his agreement with the IRS. There is no indication that Mr. Banks' attorney or accountant had sought to contact her prior to this time. At the time Mr. Banks first sought out Mrs. Banks to cooperate, he and his attorney had been involved with the IRS for over a year and had not yet contacted her. Mr. Banks filed his Motion to find Respondent in Contempt and for Affirmative Relief on February 26, 1992, nineteen (19) days after he first talked to Mrs. Banks and asked her to sign the joint returns. At the time the Special Master first considered this case, there was less than one week remaining of the thirty day period the Tax Court had given Mr. Banks to secure Mrs. Banks' signature on the tax returns. The actual tax forms were sent to Mrs. Banks on March 11, 1992, which was two days before the March 13 deadline. Along with the forms was a copy of the indemnity agreement signed by Mr. Banks. The Special Master's report (filed March 17, 1992) included the following: Additionally, the court finds that each parties' obligation to cooperate with each other in the filing of all tax returns as set out in the Property Settlement Agreement, also includes the obligation to exchange documents as may be reasonable and necessary to permit both parties to have access to the necessary financial records in order to prepare and review any joint tax returns [sic]. At the March 9, 1992 hearing the Special Master, as part of his findings, stated: To the extent that either party has documents that it is necessary for the other party to utilize, whether it be receipts or financial records, or whatever, then that party with possession of the documents shall deliver to the party that needs those documents whatever necessary documents. This is a two-way street. Mr. Banks, I've heard a lot about the fact that Mrs. Banks has some documents that you need in order to prepare your tax return. She is also entitled to know what's going on. She's entitled to review tax returns. She is entitled to review backup information and have a tax accountant or tax preparer, or whatever, also review that information as well. As it developed, Mr. Banks did not need any documents from Mrs. Banks. The exchange of documents never happened. There is no indication that Mrs. Banks was ever given or offered the backup information in support of the tax returns. This is consistent with Mr. Banks' previous dealings with Mrs. Banks during the marriage. Mr. Banks handled all the filing of income taxes during the marriage. He alone had access to most of the supporting documents and records. Mrs. Banks did not even know what his income was during their entire marriage. Mr. Banks calls her protestations that she was not a party to the proceeding mere cynical sophistry, fashioned to extricate Ms. Banks from a quandary she herself created. This suggests that Mrs. Banks was responsible for causing this tax problem, rather than Mr. Banks. In fact, Mr. Banks seems to have been unwilling to accept any responsibility for his own failure to file income tax returns. Of the $64,740.00 that would be owed by Mr. Banks by filing married filing separately, only $22,125.00 is taxes. The remaining $42,615.00 is for failure to file, failure to pay, negligence, interest and interest penalty. The testimony of Mr. Barnes suggests that many of these fees could have been avoided if Mr. Banks had not let the matter get to Tax Court. This neglectful pattern in handling financial matters during their marriage and the succeeding years shortly thereafter certainly gives credence to Mrs. Banks' concerns and alarm about her liability and exposure under this issue. It should be noted that the amount assessed against Mrs. Banks by the Special Master is roughly half the entire tax liability due. Also, the total taxes and other fees due if filing jointly totalled $33,653.00, which is considerably more than the $14,000.00 which Mr. Banks tendered to his attorneys as payment under directive from the Special Master. The Special Master's conclusion that Mr. Banks fulfilled his conditions to Mrs. Banks signing is not supported by the proof. Contrary to the findings and the testimony, the actual difference between filing jointly and filing singly was $31,087.00 according to the document used by Mr. Banks in testifying. Mr. Banks failed to give Mrs. Banks the benefit of the $1,236.00 which would be owed for 1983 if filing singly. On the whole, this case resulted in Mrs. Banks being made to suffer rather severe consequences, despite there being clear merit to her argument and concerns. In the present case, Mr. Banks did little or nothing to minimize his loss after it was clear that Mrs. Banks would not sign. In Pelican Trucking Co. v. Rossetti, 251 Miss. 37, 43, 167 So.2d 924, 927 (1964), this Court said, One suing for damages is required to minimize his loss. See Jones v. Benton County Board of Education, 389 So.2d 1381, 1383 (Miss. 1980); Bridges v. Land, 252 So.2d 209, 211 (Miss. 1971). At the time of the last hearing Mr. Banks had not filed returns or made any payments or made any effort to stop the running of the additional interest and penalties which are tied to time of filing and remaining taxes owed. It seems contrary to established principles of recovery to allow the meter to continue to run and then be able to charge this to the opposing party. Yet, that is precisely what was done. The Special Master had already ruled that Mrs. Banks would be responsible for the additional taxes and interest, and Mr. Banks did nothing to minimize these damages even though he was in a position to do so. Any additional damages which occurred after March 13, 1992, the deadline set by the Tax Court for Mrs. Banks' signature, should not have been charged against her even if she were liable under the agreement of the parties. The figures used by the Special Master in assessing damages had interest figured through October, some seven months beyond the point where Mr. Banks should have filed and made payment of the monies tendered to his attorneys. Mr. Banks and his attorneys were fully aware that he would be filing married filing separately at that point. The Special Master clearly erred in finding that Mrs. Banks should be liable for the additional taxes and the chancellor was in error in affirming the Special Master.