Webb v. Commissioner

T.C. Memo. 1996-550

UNITED STATES TAX COURT

CAROLYN WEBB, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

JERRY D. WEBB, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 18976-94, 19059-94. Filed December 19, 1996.

Carolyn Webb and Jerry D. Webb, pro sese.

Bryan E. Sladek, for respondent.
 - 2 -

MEMORANDUM FINDINGS OF FACT AND OPINION

PARR, Judge: Respondent determined deficiencies in, and

additions to, petitioner Jerry Webb's (petitioner) Federal income

tax for 1990, 1991, and 1992 as follows:

Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1990 $12,693.00 $ 3,132.50 $ 831.25
1991 17,824.00 4,456.00 1,025.23
1992 19,168.00 1,120.50 249.32

Respondent determined deficiencies in, and additions to,

petitioner Carolyn Webb's (Carolyn Webb) Federal income tax for

1990, 1991, and 19921 as follows:

Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1990 $ 2,952.00 $ 738.00 $ 194.37
1991 4,139.00 1,034.75 238.07
1992 3,756.00 939.00 163.82

1
Respondent determined that Carolyn Webb had deficiencies in
tax for 1987 through 1992. At trial, and on brief, however,
respondent concedes the deficiencies asserted against Carolyn
Webb for 1987 through 1989 based on two decisions entered by this
Court against petitioner. See Webb v. Commissioner, T.C. Memo.
1993-521, affd. without published opinion 46 F.3d 1149 (9th Cir.
1995); Webb v. Commissioner, T.C. Memo. 1993-283, vacated and
remanded in part without published opinion 28 F.3d 111 (9th Cir.
1994), on remand T.C. Memo. 1995-199, affd. 86 F.3d 1165 (9th
Cir. 1996). Those decisions sustained respondent's
determinations, which attributed 100 percent of the income earned
by petitioner to him. Accordingly, respondent concedes the
deficiencies asserted against Carolyn Webb for 1987, 1988, and
1989.
 - 3 -

These cases (docket No. 18976-94 involving the income tax of

Carolyn Webb for 1987, 1988, 1989, 1990, 1991, and 1992 and

docket No. 19059-94 involving the income tax of petitioner for

1990, 1991, and 1992) have been consolidated for purposes of

trial, briefing, and opinion pursuant to Rule 141(a).

All section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated. All dollar amounts are rounded to the nearest dollar,

unless otherwise indicated.

After concessions by the parties,2 the issues for decision

are: (1) Whether one half of petitioner's income for 1990,

1991, and 1992 is attributable to Carolyn Webb pursuant to the

operation of California community property law.3 We hold it is,

2
For 1990, respondent concedes that she incorrectly
determined wages of $1,444 against petitioner that were actually
earned by him in 1991.
For 1991, respondent concedes that petitioner had $50,710 in
nonemployee compensation, rather than the $52,710 amount that
respondent determined in the notice of deficiency.
For 1990, 1991, and 1992, respondent concedes that
petitioners are each entitled to the standard deduction and one
personal exemption. Petitioner is also entitled to a deduction
for one half of the self-employment tax. These are mathematical
adjustments.
3
Respondent determined that Carolyn Webb is liable for tax on
$19,771 for 1990 and $26,379 for 1991, which is one half of
petitioner's income for those years. For 1992, respondent
concedes that Carolyn Webb is liable for tax on income of only
$27,038, which is the amount determined by respondent in the
notice of deficiency. Although this amount is substantially less
than 50 percent of petitioner's income for 1992, respondent does
not seek an increase in any of the deficiencies as asserted in
(continued...)
 - 4 -

to the extent set out below. (2) Whether petitioner is liable

for self-employment tax for 1990, 1991, and 1992. We hold he is.

(3) Whether petitioners are each liable for additions to tax

under section 6651(a)(1) for 1990, 1991, and 1992 for failure to

file returns. We hold they are. (4) Whether petitioners are

each liable for additions to tax under section 6654 for the

failure to pay estimated tax for 1990, 1991, and 1992. We hold

they are. (5) Whether a penalty for maintaining a frivolous

position should be imposed against each petitioner under section

6673. We hold it should be with respect to petitioner but not as

to Carolyn Webb.

FINDINGS OF FACT

A few of the facts have been stipulated and are so found.

The stipulated facts and the accompanying exhibits are

incorporated into our findings by this reference. At the time

they filed their separate petitions in these cases, petitioners,

husband and wife, resided in Vallejo, California.

Petitioners did not file Federal income tax returns for

1990, 1991, and 1992, nor did they pay any taxes during those

years, except for $20 in withholdings from Carolyn Webb's 1992

wage income as shown on Form W-2. To determine the income that

petitioner received for the taxable years in issue, respondent

prepared substitute income tax returns for those years. For 1990

3
(...continued)
the statutory notice of deficiency sent to Carolyn Webb.
 - 5 -

and 1991, respondent used Information Returns Processing (IRP)

transcripts. The IRP transcripts are based upon information

submitted to the Internal Revenue Service (IRS) by payors who

filed information returns with the IRS showing that they paid

certain amounts to petitioner during 1990 and 1991 for the

following items: Wages, dividends, nonemployee compensation, and

unemployment income. To reconstruct petitioner's income for

1992, respondent used an IRPOLT document, which is essentially an

abbreviated IRP transcript generated by respondent's Integrated

Data Retrieval System (IDRS). Petitioner received income during

1990, 1991, and 1992, of $39,542, $52,757, and $94,649,4

respectively. To calculate the deficiencies in issue, respondent

used rates applicable to married persons filing separately.

During 1989 and 1990 petitioner traveled on business to

Pennsylvania, Arkansas, Louisiana, and Texas. Sometime around

July of 1989, Carolyn Webb went to Texas to care for her

terminally ill father. The Webbs returned to California in

approximately May of 1990.

4
According to the IRPOLT for 1992, petitioner received
$16,050 in rents, which is reflected in the $94,649 amount
asserted by respondent against petitioner for 1992. Although
respondent failed to include the $16,050 in the notice of
deficiency, it was incorporated into the proposed stipulation
that was sent to petitioner and deemed admitted pursuant to Rule
91(f)(3).
 - 6 -

OPINION

Issue 1. Domicile and Allocation of Community Property Income

Respondent determined that one half of the income earned by

petitioner for 1990, 1991, and 1992 is attributable to Carolyn

Webb.5 Carolyn Webb asserts that she was not a resident of

California during 1989 and part of 1990, and therefore is not

subject to California community property law.6

Respondent's determinations are presumed correct, and petitioners

bear the burden of proving that those determinations are

5
For the taxable years in issue, respondent issued two
notices of deficiency, one in petitioner's name and one in the
name of Carolyn Webb. In the notice of deficiency asserted
against petitioner, respondent determined that 100 percent of the
earned and unearned income in petitioner's name was attributable
to him. In the notice of deficiency asserted against Carolyn
Webb, respondent determined that for 1990 and 1991, 50 percent of
the earned and unearned income in petitioner's name was
attributable to her. However, for 1992, the notice of deficiency
attributes only $27,038 of petitioner's income to Carolyn Webb.
See supra note 3. For the years 1990, 1991, and 1992, respondent
concedes the income asserted against petitioner to the extent
that his income is reattributed to Carolyn Webb according to
California community property law.
6
The trial memorandum submitted by petitioners to this Court
asserts that both petitioner and Carolyn Webb were not residents
of California for part of the years in issue, and therefore are
not subject to California community property law. However, this
contention with respect to petitioner is actually prejudicial to
his interest. If California community property law does not
apply to petitioner, then he would be liable for tax on 100
percent of his income; 50 percent would not be attributable to
Carolyn Webb.
 - 7 -

erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933); Durando v. United States, 70 F.3d 548, 550 (9th Cir.

1995).

For Federal income tax purposes, to determine what

constitutes an individual's income in a community property

jurisdiction, we must look "to the law of the State as to the

ownership of community property and of community income." United

States v. Mitchell, 403 U.S. 190, 195 (1971); Morgan v.

Commissioner, 309 U.S. 78, 79 (1940). It is well established

that domicile, rather than mere place of temporary residence,

controls the application of community property law. Whitmore v.

Commissioner, 25 T.C. 293 (1955); In re Allshouse's Estate, 13

Cal. 2d 691 (1939). Furthermore, the law of the State in which

the earner of income is domiciled is the appropriate law to be

utilized in determining whether such income is community

property. Kamikido v. Commissioner, T.C. Memo. 1979-402; see

Morgan v. Commissioner, 309 U.S. 78 (1940).

California is a community property State. Therefore, we

look to California law to determine whether income is community

property, or whether it is separate property. United States v.

Mitchell, supra; Lucia v. Commissioner, T.C. Memo. 1991-77, affd.

without published opinion 962 F.2d 14 (9th Cir. 1992). The term

"community property", pursuant to California law, is generally

defined as "property acquired by husband and wife, or either,

during marriage, when not acquired as the separate property of
 - 8 -

either." Cal. Civ. Code sec. 687. (West 1982); Lucia v.

Commissioner, supra. Under California law, absent a contrary

agreement, each spouse has the right to one half of all community

income from the moment it is acquired and therefore is liable for

the Federal income tax on one half of such amount. Cal. Civ.

Code sec. 5105. (West 1983); United States v. Malcolm, 282 U.S.

792 (1931).

The character of property as separate or community is

determined at the time of acquisition. See v. See, 64 Cal. 2d

778, 783-784 (1966). Property acquired by purchase after

marriage is presumed to be community property. Id. Furthermore,

earnings of a husband acquired during marriage are presumed to be

community property. People v. Lockett, 25 Cal. App. 3d 433, 439

(1972). With respect to unearned income, where the source

property is presumed to be community property, and no evidence is

introduced to rebut such presumption, then the income from such

property is presumed community income. Estate of Frye v.

Commissioner, 44 B.T.A. 835 (1941); In re Estate of Miles, 72

Cal. App. 2d 336, 341 (1945). Under California law, the burden

of proving that property is separate rests on the party making

such assertion. See v. See, supra.

With respect to one's domicile, once established it is

presumed to continue until it is shown to have been superseded by

a new domicile. Myers v. Commissioner, 11 T.C. 447, 463 (1948);

Whitmore v. Commissioner, supra. In order to change one's place
 - 9 -

of domicile, for community property purposes, one must form an

intent to remain in the new location permanently or indefinitely.

Id. The determination of an individual's domicile is primarily a

question of fact. Niki v. United States, 484 F.2d 95 (9th Cir.

1973) (per curiam); Kamikido v. Commissioner, supra. Although we

consider statements of intention made by an individual with

respect to his or her domicile, we give such statements slight

weight when they conflict with an individual's actions. Texas v.

Florida, 306 U.S. 398, 425 (1939). Where there is any doubt as

to one's domicile, the domicile of origin prevails. Whitmore v.

Commissioner, supra at 297.

Under California law, the fact that spouses live apart for a

period of time does not affect the allocation of income.

Sidebotham v. Robison, 216 F.2d 816 (9th Cir. 1954). Only where

spouses live separate and apart with the intent of ending the

marriage are the earnings of each spouse considered separate

property, rather than community property. Cal. Civ. Code sec.

5118 (West 1983); In re Marriage of Hardin, 38 Cal. App. 4th 448,

451 (1995) (interpreting the phrase "living separate and apart"

in the context of Family Code sec. 771 (West 1994), previously

Cal. Civ. Code sec. 5118 (West 1983)).

Respondent determined that petitioners were California

domiciliaries during all of the years in issue and thus are

subject to California community property law.
 - 10 -

At trial, petitioner testified that during 1989 and 1990,

he traveled on business to Pennsylvania, Arkansas, Louisiana, and

Texas. Carolyn Webb asserts that she left California for Texas

sometime around July of 1989 to stay with her parents while her

husband was away from home on business. The Webbs returned to

California in approximately May of 1990.

That Carolyn Webb was out of California for part of 1989 and

1990 does not except her from California community property law.

As we discussed above, it is domicile, not place of temporary

residence, that determines the application of community property

rules. Whitmore v. Commissioner, supra. For community property

purposes, to show that she changed her place of domicile, Carolyn

Webb must establish that she left California with an intent to

remain in a new location permanently or indefinitely. Id. We

are not convinced of such intent. In 1990, Carolyn Webb was

merely visiting her sick father in Texas, while petitioner was

traveling for business. Petitioners then returned to their place

of permanent residence at 511 San Luis, Vallejo, California,

which they maintained for the entire time they were absent from

California.

The fact that petitioners lived apart for 1989 and part of

1990 does not affect the allocation of income under California

law, unless they separated with an intent to end their marriage.

Sidebotham v. Robison, supra. Based on the record, there is no

evidence of marital discord or separation, which would support
 - 11 -

the contention that petitioner's income is not attributable to

Carolyn Webb. In fact, at trial, petitioner testified that he

and his wife have been happily married for 34 years.

We therefore find that petitioners did not live separate and

apart with the intent of ending their marriage, nor did they form

an intent to move outside California permanently. Thus, they

remained domiciled in California during the years in issue.

Accordingly, petitioners are subject to California community

property law.

Given this fact, we must now determine whether Carolyn Webb

is liable for income tax on 50 percent of petitioner's earned and

unearned income for 1990, 1991, and 1992. Cal. Civ. Code sec.

5105 (West 1983); United States v. Malcolm, supra.

Earnings of a husband during the marriage are presumed to be

community property. People v. Lockett, supra. Here, petitioners

were married long before the years in issue. The burden of proof

is on petitioners to establish that such earnings are separate.

See v. See, supra. However, Carolyn Webb did not introduce any

evidence to negate a finding that petitioner's earnings are

community property.

With respect to petitioner's unearned income, since the

source property is presumed to be community property, and Carolyn

Webb has failed to introduce evidence to the contrary, the income

from such property is also community property. Estate of Frye v.
 - 12 -

Commissioner, 44 B.T.A. 835 (1941); In re Estate of Miles, 72

Cal. App. 2d 336, 341 (1945).

On brief, respondent acknowledges that for 1992, the notice

of deficiency mailed to petitioner failed to include $16,050 in

rents earned by petitioner. However, respondent included this

amount in the proposed stipulation, which was sent to petitioner

and deemed admitted pursuant to Rules 91(f)(3) and 123(b). Thus,

we sustain respondent's determination that the $16,050 is

includable in petitioner's income for 1992. Respondent does not

seek to hold Carolyn Webb liable for tax on one half of the

$16,050, because she does not seek an increased deficiency

against Carolyn Webb for 1992. Petitioner did not object to this

allocation. Accordingly, we sustain respondent's determination

that Carolyn Webb is liable for income tax on one half of all the

earned and unearned income in petitioner's name for 1990, 1991,

and 1992 to the extent of the income asserted against her by

respondent in the notice of deficiency.7 With respect to

petitioner, he is liable for tax on the income determined in the

notice of deficiency mailed to him, plus the $16,050 for 1992,

less the amounts attributable to Carolyn Webb under California

community property law.

7
We have considered sua sponte whether sec. 66(a) applies
and hold that it does not. Carolyn Webb does not meet the
requirements of sec. 66(a)(2)(A) and (a)(4).
 - 13 -

Issue 2. Self-Employment Tax

Respondent determined that petitioner is liable for self-

employment tax on 100 percent of the nonemployee compensation he

received during 1990, 1991, and 1992.

A husband's self-employment income earned during the

marriage is presumed to be community property. People v.

Lockett, 25 Cal. App. 3d 433, 439 (1972). However, the Code

carves out an exception for self-employment tax purposes. In a

community property State, where self-employment income is earned

by the husband, unless the wife exercises substantially all of

the management and control of the trade or business, all of the

income will be treated as the income of the husband for self-

employment tax purposes. Sec. 1402(a)(5)(A); sec. 1.1402(a)-

8(a), Income Tax Regs. Since petitioner does not allege that

Carolyn Webb had anything to do with the self-employment income

earned in his name, it is petitioner, and not Carolyn Webb, who

is liable for 100 percent of the self-employment tax.

Issue 3. Additions to Tax Under Section 6651(a)(1)

Respondent determined that both petitioners were liable for

additions to tax for failure to file income tax returns for 1990,

1991, and 1992 under section 6651.

Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed (determined with regard to

any extension of time for filing), unless it is shown that such

failure is due to reasonable cause and not due to willful
 - 14 -

neglect. Sec. 6651(a)(1); Webb v. Commissioner, T.C. Memo. 1993-

521, affd. without published opinion 46 F.3d 1149 (9th Cir.

1995). The taxpayer has the burden of proving that the addition

is improper. Rule 142(a); United States v. Boyle, 469 U.S. 241,

245 (1985).

Neither petitioner nor Carolyn Webb filed income tax returns

for the years in issue. We find that such failure was due to

willful neglect and not reasonable cause. Accordingly, we

sustain respondent's determination with respect to this issue.8

Issue 4. Additions to Tax Under Section 6654

Respondent determined that petitioners are liable for

additions to tax for failure to pay estimated tax for 1990, 1991,

and 1992 under section 6654.

Section 6654(a) generally imposes an addition to tax if

installment payments of estimated tax made during a year do not

equal or exceed the threshold set forth in section 6654(d). Sec.

6654; Philips v. Commissioner, T.C. Memo. 1995-540, affd. without

published opinion 99 F.3d 1146 (9th Cir. 1996). The burden of

proof is on petitioners to establish that they qualify for an

exception under section 6654(e). Rule 142(a); Philips v.

Commissioner, supra. Petitioners do not qualify for any

8
With respect to Carolyn Webb, the additions to tax imposed
on her pursuant to sec. 6651(a)(1) are limited to the community
property income attributed to her by respondent in the notice of
deficiency.
 - 15 -

exception. Accordingly, we affirm respondent's determinations of

these additions to tax.9

Issue 5. Sanctions Under Section 6673

Prior to trial, respondent filed a motion requesting the

imposition of a penalty against each petitioner in the amount of

$25,000 under section 6673(a), on the ground that petitioners

failed to comply with the Court's orders and rules in preparing

these cases for trial, and because they instituted the

proceedings primarily for delay. Petitioner, in response,

continued to assert groundless tax protester arguments.

We begin by noting that petitioners are not strangers to

this Court. Rather they have a well established history as tax

protesters. In fact, the petitions originally filed in this case

made various frivolous and groundless allegations, which failed

to address the issues mentioned in respondent's notices of

deficiency sent to petitioners. Petitioner raised similar

arguments in two other instances when he appeared as a party

before this Court. We granted respondent's motion to dismiss for

lack of prosecution with respect to the case involving

petitioner's tax years 1984 through 1988, Webb v. Commissioner,

T.C. Memo. 1993-283, vacated and remanded in part 28 F.3d 111

(9th Cir. 1994). In that case, we also imposed a $5,000 penalty

9
With respect to Carolyn Webb, the additions to tax imposed
on her pursuant to sec. 6654 are limited to the community
property income attributed to her by respondent in the notice of
deficiency.
 - 16 -

against petitioner pursuant to section 6673(a). Id. In a later

case, involving the 1989 tax year, we imposed a $10,000 penalty

on petitioner for asserting similar frivolous tax protester

arguments. Webb v. Commissioner, T.C. Memo. 1993-521, affd. 46

F.3d 1149 (9th Cir. 1995).

Petitioners failed to cooperate in preparing this case for

trial.10 They did not pursue available administrative remedies

nor comply with attempts by respondent's Appeals Division and

respondent's counsel, either to settle this case or to stipulate

all facts to the extent possible, as required by the Court's

standing pretrial order and Branerton Corp. v. Commissioner, 61

T.C. 691 (1974). Petitioners were generally uncooperative in

providing respondent with documents and in stipulating facts as

required by Rule 91. Petitioners consistently refused to address

the issue of income received for the years in issue.

Nevertheless, petitioners continue to assert that they do not owe

any tax. Petitioners have the burden of proof. Rule 142(a).

10
Prior to trial, respondent moved to dismiss petitioners'
claim pursuant to Rule 123(b), because of their noncooperation.
We declined respondent's motion based on Carolyn Webb's assertion
that she was not a California resident for part of the tax years
in issue. However, pursuant to Rule 123(b), we may decide
against petitioners with respect to any issue as to which
petitioners have the burden of proof, and such decision shall be
treated as a dismissal for purposes of Rule 123(d). Accordingly,
we treated respondent's motion to dismiss for failure to properly
prosecute as a motion in limine, and precluded all evidence
except for that pertaining to Carolyn Webb's place of residence
during the years in issue. With respect to all other issues in
this case, and taking into account respondent's concessions, we
found that the facts and evidence set forth in respondent's
proposed stipulation were deemed established for purposes of
these cases. See Rule 91(f)(3).
 - 17 -

Given this scenario, we normally would have imposed damages

against each petitioner pursuant to section 6673 for each of the

years in issue. In this case, however, respondent conceded for

the first time at trial that Carolyn Webb was not liable for the

deficiencies determined against her for tax years 1987, 1988, and

1989. Moreover, in the trial memorandum, Carolyn Webb raised a

substantive issue pertaining to her residence for the years in

issue, and whether California community property law is

applicable to her for those years. For these reasons, we decline

to impose damages against her.

With respect to petitioner, he had no grounds to support the

purported factual issue, raised for the first time in the trial

memorandum, concerning the application of community property law

with respect to him. In fact, by asserting that he is not

subject to California community property law for the years in

issue petitioner actually argued against his own interest.

Petitioner's other arguments were completely frivolous. We

further find that petitioner instituted and maintained these

proceedings primarily for delay. Accordingly, we conclude that

damages authorized by law of $15,000 are awarded to respondent

under section 6673(a).

To reflect the foregoing,

An appropriate order will

be issued and decisions will be

entered under Rule 155.