Court Opinion

ID: 4486387
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:23.866087+00
Date Added: 2024-06-11T14:53:49.303592
License: Public Domain

KÓRNER, J., dissenting: I am in agreement with everything in the majority opinion except for one small part, involving the interpretation of section 6013(e)(1)(C), which requires that a putative innocent spouse establish “that in signing the return he or she did not know, and had no reason to know, that there was such substantial understatement * * * .” That small part, however, makes a major difference in the result here. In holding in favor of respondent on this issue, the majority opinion in effect holds that a general knowledge of the transaction as a whole by the so-called innocent spouse will defeat the protection of the statute, even though it may be shown that the innocent spouse had no knowledge of nor had any reason to have knowledge that there was some element of the transaction as reported which gave rise to the substantial understatement. In so doing, the majority here follows Purcell v. Commissioner, 86 T.C. 228 (1986), affd. 826 F.2d 470 (6th Cir. 1987) and the more recent opinion of Stevens v. Commissioner, 872 F.2d 1499 (11th Cir. 1989), affg. a Memorandum Opinion of this Court. This same approach was taken by this Court in the case of Price v. Commissioner, an unreported case in 1988, on which we were reversed by the Court of Appeals for the Ninth Circuit in Price v. Commissioner, 887 F.2d 959 (9th Cir. 1989). In that case, the Ninth Circuit pointed out that section 6013 had been amended by the Tax Reform Act of 1984 because of the perception of Congress that it was phrased too narrowly. Thus, the purpose of the 1984 amendment was described in the House Report as follows: The committee believes that the present law rules relieving innocent spouses from liability for tax on a joint return are not sufficiently broad to encompass many cases where the innocent spouse deserves relief. [[Image here]] The bill liberalizes the innocent spouse joint return relief provision by expanding the circumstances in which the relief may be granted. [H. Rept. 432 (Part 2), 98th Cong., 2d Sess. 1501-1502 (1984).] The Court of Appeals in Price (in note 9) made the following statements which I consider to be very significant in this case. The Court of Appeals said: The tax court, borrowing language from cases involving deficiencies caused by omissions of income, read section 6013(e)(1)(C) to require a spouse to establish that she did not know of the transaction underlying the deduction. [Citations omitted.] We decline to follow the tax court’s literal super-imposition of the legal standard developed in omission cases onto deduction cases in part because to do so would for the most part wipe out innocent spouse protection in the latter category. Such a standard may be workable in omission cases simply because the understatement is caused by includable income being left off a return. Therefore, it is considerably easier for a spouse to show that she was unaware of the transaction giving rise to the omission, and thus to qualify for relief. [Citation omitted.] But because deductions are necessarily recorded, any spouse who at least reads the joint return will be put on notice that some transaction allegedly has occurred to give rise to the deduction. As a result, if knowledge of the transaction, operating of itself, were to bar relief, a spouse would be extremely hard-pressed ever to be able to satisfy the lack of actual and constructive knowledge element of section 6013(e)(1) in a deduction case. Thus, adoption'‘of such an interpretation would do violence to the intent Congress clearly expressed when it expanded coverage of the provision to include relief for spouses from deficiencies caused by deductions for which there is no basis in fact or law. [Citations omitted.] It would also hinder Congress’s broader purpose in enacting section 6013(e) — that of seeking to remedy an injustice — by giving the section an unduly narrow and restrictive reading. [Citations omitted.] While we do not embrace the tax court’s construction of section 6013(e)(1)(C), we do not mean to say that a spouse’s knowledge of the transaction underlying the deduction is irrelevant. Obviously, the more a spouse knows about a transaction, ceteris paribus, the more likely it is that she will know or have reason to know that the deduction arising from that transaction may not be valid. We merely conclude that standing by itself, such knowledge does not preclude relief. In addition, when we look beyond the language courts have used in omission cases to the function such a standard has served, we see that it represents merely a different way of approaching what is the same inquiry as the one we announce today. [Citation omitted.] That is, in income omission cases, knowledge of the transaction is virtually equivalent to knowledge of the understatement because if a spouse knows of a transaction which generated income that the return does not report, then it is extremely likely that she will know that the return does not report all income (unless she merely lacks knowledge of tax consequences). Thus, the omission cases that have examined whether a spouse had knowledge of the transaction in a sense really have been looking to discern whether she knew or had reason to know of the substantial understatement. Here, the majority is saying in effect that simply because Mrs. Bokum knew about the sale of some of the Quinta Ranch property in a general fashion, she should be deemed to have knowledge, or be chargeable with knowledge, of the various computations which went into the way in which that transaction was reported in the return. Specifically, the majority is holding that Mrs. Bokum was chargeable with the knowledge that as the transaction was reported in the 1977 return, an erroneous deduction was taken for the alleged stock basis of Mr. Bokum. Everyone agrees that such a claimed deduction had no basis in law and everyone agrees that it was this error which caused the deficiency in issue here as to which Mrs. Bokum claims relief. It also appears to be accepted by the majority that Mrs. Bokum was a person with no business or financial background, experience, or education, and that she had nothing to do with the operations of Quinta. I submit that to hold her liable in this situation simply requires that she underwrite the accuracy of the complicated computation by which the transaction was reported in the return — a transaction she was aware of in only the most general way and the details of which she knew nothing. I submit that this is exactly the type of situation which section 6013(e)(1)(C) was designed to meet, in order to provide protection to a truly innocent spouse who had nothing to do with the affair at all except for having signed the joint return. The issue is a close one, and really depends upon the varying interpretation which the courts have given to section 6013(e)(1)(C) in Purcell v. Commissioner, supra, and Stevens v. Commissioner, supra, on the one hand, and in Price v. Commissioner, supra, on the other hand. The difference is a fine one, but the result is not. In this and similar cases, I think this Court should follow the lead of the Ninth Circuit in Price and give the statute the more liberal reading which Congress intended. Specifically, I think we should hold that Mrs. Bokum was an innocent spouse within the meaning of section 6013(e), so far as it pertains to that portion of the deficiency herein which was attributable to the erroneous deduction of Mr. Bokum’s claimed basis in the Quinta stock in arriving at the net amount reportable for tax purposes. In other respects, I agree with the majority opinion. Williams, Wells, Whalen, and Colvin, JJ., agree with this dissent.