T.C. Memo. 1997-350
UNITED STATES TAX COURT
FRANCIS Z. MISCHEL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24938-95. Filed July 30, 1997.
Francis Z. Mischel, pro se.
Pamelya P. Herndon, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge Robert N. Armen, Jr., pursuant to the provisions of section
7443A(b)(4) of the Internal Revenue Code of 1986, as amended, and
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Rules 180, 181, and 183.1 The Court agrees with and adopts the
Opinion of the Special Trial Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
ARMEN, Special Trial Judge: Respondent determined a
deficiency in petitioner's Federal income tax for the taxable
year 1992 in the amount of $2,096 and an addition to tax under
section 6651(a)(1) in the amount of $519. In contrast,
petitioner claims an overpayment in the amount of $352,100.
After concessions by petitioner,2 the issues for decision
are as follows:
(1) Whether respondent may, in determining the deficiency in
income tax against petitioner, disregard the community property
laws of the State of Arizona;
(2) Whether, for purposes of determining the applicable tax
rates and standard deduction, petitioner's filing status is that
of a married person filing jointly, a married person filing
separately, or a head-of-household;
(3) whether petitioner is entitled to dependency exemption
deductions for her three children;
1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for 1992, the taxable year
in issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
2
Petitioner concedes that she worked for Sandia Oil Co.
and Show Low Gemstones, Inc. in 1992 and received wages during
that year from those companies in the amounts of $5,735 and
$13,518, respectively.
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(4) whether petitioner is entitled to an additional
exemption for her husband;
(5) whether petitioner is entitled to an earned income
credit;
(6) whether petitioner is liable for an addition to tax
under section 6651(a)(1) for failure to file an income tax
return;
(7) whether petitioner overpaid her income tax; and
(8) whether petitioner should be liable for a penalty under
section 6673.
FINDINGS OF FACT
None of the facts have been stipulated. Petitioner Francis
Z. Mischel (petitioner) resided in St. Johns, Arizona, at the
time that her petition was filed with the Court.
A. Petitioner and Her Family
Petitioner was married to Le W. Mischel (Mr. Mischel)
throughout 1992 and lived with him during the year. Mr. Mischel
was not gainfully employed in 1992 and received no income during
the year; he was also without financial resources.
Petitioner and Mr. Mischel have 3 children: Andre, a son,
who turned 12 in 1992; Daphne, a daughter, who turned 17 in 1992;
and Melody, a daughter, who turned 18 in 1992. Andre, Daphne,
and Melody resided with petitioner and Mr. Mischel in 1992,
except for that part of the year when Daphne or Melody may have
been away in college.
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B. Petitioner's Employment
Petitioner worked for Sandia Oil Co. (Sandia) and Show Low
Gemstones, Inc. (Show Low) in 1992. During that year, petitioner
received wages from those companies in the amounts of $5,735 and
$13,518, respectively, for a total of $19,253. No Federal income
tax was withheld from petitioner's wages by Sandia; Federal
income tax in the amount of $20 was withheld from petitioner's
wages by Show Low.
Petitioner provided the sole support for herself and her
family in 1992.
C. Petitioner's Form 1040A
On April 23, 1993, respondent received a Form 1040A (U.S.
Individual Income Tax Return) that purported to be an income tax
return for 1992 (the Form 1040A). Although the Form 1040A was
signed by petitioner, it was prepared by (or at the direction of)
Mr. Mischel.
The Form 1040A disclosed petitioner's filing status as
"head-of-household", claimed the standard deduction in the amount
appropriate for that filing status, and listed Andre, Daphne, and
Melody as dependents. The Form 1040A also included the following
numerical entries:
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Entry Amount
Wages, salaries, tips, etc. $(207,485.41)
Total income (207,485.41)
Total adjustments to income -0-
Adjusted gross income (207,485.41)
Standard deduction 5,250.00
Exemptions (4 @ $2,300 ea.) 9,200.00
Taxable income -0-
Tax -0-
Total tax -0-
Payments:
tax withheld $303,114.25
estimated tax payment 602.50
earned income credit 1,384.00
Total payments $305,100.75
Tax informant fee 47,000.00
Overpaid/refund $352,100.75
At trial, the entry of $(207,485.41) was described as
consisting of the following items:
Item Amount
Fraudulent IRS claim $(188,000.00)
Arizona tax based on fraud-
ulent IRS information (38,739.56)
Subtotal $(226,739.56)
Wages (Sandia & Show Low) 19,253.00
Total $(207,486.56)
The "fraudulent IRS claim" apparently relates to what petitioner
regards as a fraudulent assessment(s) or claim made by respondent
against petitioner or Mr. Mischel for tax pertaining to a taxable
year(s) prior to the taxable year in issue. The "Arizona tax
based on fraudulent IRS information" apparently relates to what
petitioner regards as a fraudulent assessment or claim made by
the Arizona Department of Revenue against petitioner or Mr.
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Mischel for tax pertaining to the taxable year 1986 "based on
fraudulent information furnished by respondent".
The entry for "tax withheld" in the amount of $303,114.25
apparently relates principally to what petitioner believes was
the fraudulent income amount for the taxable year 1986 that was
furnished by respondent to the Arizona Department of Revenue and
that led to the "Arizona tax based on fraudulent IRS information"
described above.
The entry for "estimated tax payment" in the amount of
$602.50 represents the alleged out-of-pocket cost incurred by
petitioner and Mr. Mischel in traveling to respondent's service
center in Ogden, Utah, in February 1992 in order to review their
tax records for prior years.
The entry for "tax informant fee" in the amount of $47,000
represents 25 percent of $188,000. This "fee" was claimed by
petitioner on the basis that she and Mr. Mischel exposed "the
fraudulent IRS claim" described above.
Respondent did not process the Form 1040A as an income tax
return. Rather, respondent treated it as a frivolous return and
assessed the frivolous return penalty under section 6702 against
petitioner in the amount of $500.
D. Petitioner's Form 1040X
At trial, petitioner tendered to the Court a Form 1040X
(Amended U.S. Individual Income Tax Return) for 1992 (the Form
1040X), which mirrored the Form 1040A, except for the following:
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(1) The Form 1040X was signed by both petitioner and Mr. Mischel;
(2) the Form 1040X claimed one additional exemption (for Mr.
Mischel); and (3) the Form 1040X claimed the standard deduction
in an amount appropriate to a joint return. Petitioner never
filed the Form 1040X with respondent.3
E. Respondent's Determination
By notice of deficiency issued August 25, 1995, respondent
determined that petitioner received income from wages in the
total amount of $19,253 in 1992. Respondent also determined that
petitioner did not file an income tax return for 1992 and is
therefore liable for the addition to tax under section
6651(a)(1).
In determining the amount of the deficiency in income tax,
respondent: (1) Treated petitioner as married; (2) allowed
petitioner the standard deduction in an amount appropriate to a
married person filing separately; (3) applied the tax rates
applicable to that filing status; (4) allowed petitioner an
exemption for herself; and (5) did not allow any dependency
exemptions or the earned income credit. Further, in determining
the amount of the deficiency, respondent did not make any
allowance for the community property laws of the State of
Arizona.
3
At trial, Mr. Mischel testified that "we do not regard
the IRS as having any jurisdiction over [petitioner's] 1992 taxes
at this particular time, until the Court releases the
jurisdiction back to the IRS."
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F. Petitioner's Contentions
Petitioner admits that her wages are taxable. However,
petitioner contends that she reported her wages on the Form
1040A, which she further contends is a valid income tax return.
In the alternative, petitioner contends that she should not be
held liable for an addition to tax under section 6651(a)(1)
because the frivolous return penalty under section 6702 has
already been assessed against her.
Petitioner also contends: (1) Her tax liability should be
computed by reference to the rates applicable to married
individuals filing jointly; (2) she is entitled to the standard
deduction in an amount appropriate to that filing status; (3) she
is entitled to a total of 5 exemptions, 3 for her children and
one each for herself and Mr. Mischel; (4) she is entitled to the
earned income credit; and (5) she is entitled to a refund in the
amount claimed on the Form 1040A.
OPINION
Issue (1): Community Property Split
We begin with an issue not raised by the parties but which
we think must be addressed as a fundamental matter; i.e., whether
respondent may disregard community property laws in determining a
deficiency. In this regard, we recall that respondent did not
make any allowance for the community property laws of the State
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of Arizona in determining the deficiency in income tax against
petitioner.
Section 66(b) authorizes the Commissioner to disallow the
benefits of any community property law to a taxpayer with respect
to any income if (1) the taxpayer acted as if solely entitled to
such income and (2) the taxpayer failed to notify the taxpayer's
spouse (before the due date for filing the return for the taxable
year in which the income was earned) of the nature and amount of
such income.
At trial, respondent was unable to offer any persuasive
reason why respondent was authorized to disregard the community
property laws of the State of Arizona. Petitioner did not act as
if she were solely entitled to her wage income, and she did not
fail to notify Mr. Mischel of such income. Indeed, petitioner's
wages provided the support for petitioner and her family, and
petitioner's wages were part of the computation on the Form
1040A, which was prepared by (or at the direction of) Mr.
Mischel.
Arizona law provides that the wages of a spouse represent
community property and that each spouse has an equal one-half
interest in those earnings. Ariz. Rev. Stat. Ann. sec. 25-211
(West 1976); Goodell v. Koch, 282 U.S. 118 (1930). Accordingly,
each spouse must report one-half of such income when a separate
income tax return is filed. United States v. Mitchell, 403 U.S.
190, 198 (1971).
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We have found as a fact that petitioner was married to Mr.
Mischel throughout 1992 and lived with him during the year. This
finding, which is based on the evidence adduced at trial, is
supported by respondent's determination, made in the notice of
deficiency, regarding petitioner's marital status in 1992.
In view of the foregoing, we hold that petitioner is taxable
on only one-half of the wages received from Sandia and Show Low
in 1992; i.e., one-half of $19,253 or $9,626.50, as reflected in
the computation infra on p. 12. See Schramm v. Commissioner,
T.C. Memo. 1991-523, affd. without published opinion 988 F.2d 121
(9th Cir. 1993).
Issue (2): Petitioner's Filing Status
On the Form 1040A, petitioner claimed head-of-household
filing status; on the Form 1040X, petitioner claimed that she was
entitled to file as a married individual filing jointly. In
contrast, respondent determined that petitioner must file as a
married individual filing separately. We agree with respondent.
Petitioner does not qualify as a head-of-household because
petitioner was married to Mr. Mischel throughout 1992 and lived
with him during the year. Section 2(b)(1) requires, inter alia,
that a "head of household" not be married at the close of his or
her taxable year. Cf. sec. 2(c).
Petitioner does not qualify as a married individual filing
jointly for the simple reason that petitioner did not file a
joint return with Mr. Mischel. See secs. 1(a), 6013; see
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Phillips v. Commissioner, 86 T.C. 433, 441 n.7 (1986), affd. in
part and revd. in part on other issues 851 F.2d 1492 (D.C. Cir.
1988).
In view of the foregoing, we sustain respondent's
determination that petitioner's tax liability must be computed by
reference to the rates applicable to married individuals filing
separately and that petitioner is only entitled to a standard
deduction in the amount applicable to that filing status.
Issue (3): Claimed Dependency Exemption Deductions for
Petitioner's Children
Respondent does not contend that, as a matter of law,
petitioner is not entitled to claim her children as dependents.
Rather, respondent contends that petitioner failed to
demonstrate, during the examination stage of this case, "whether
or not these dependents were truly under her care and entitled to
dependent exemption."
The record demonstrates, and we have found as a fact, that
petitioner provided the sole support for herself and her family
in 1992. The record also demonstrates that Andre, Daphne, and
Melody resided with petitioner (and Mr. Mischel) in 1992, except
for that part of the year when Daphne or Melody may have been
away in college. Under these circumstances, and in view of Mr.
Mischel's lack of financial resources, we hold that petitioner is
entitled to dependency exemption deductions for her children.
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Issue (4): Additional Exemption for Mr. Mischel
If a joint return is not filed, an exemption for a
taxpayer's spouse is allowable under section 151(b) only if the
spouse has no gross income and is not the dependent of another
taxpayer. For the reasons discussed in issue (6) infra, the
issue regarding the exemption for Mr. Mischel is moot.
Issue (5): Earned Income Credit
As relevant herein, section 32(d) provides that a married
individual is entitled to the earned income credit only if a
joint return is filed. Because petitioner did not file a joint
return, she is not entitled to an earned income credit.
Issue (6): Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax if a taxpayer
fails to file a timely return, unless the taxpayer's failure is
due to reasonable cause and not due to willful neglect. The
addition is based on the amount required to be shown as tax on
the return.
Petitioner is not liable for the addition to tax under
section 6651(a)(1) because the amount required to be shown as tax
on her return was zero. The following calculation shows why this
is true:
Income $9,626.50
Less: standard deduction -3,000.00
$6,626.50
Less: personal exemption -2,300.00
$4,326.50
Less: dependency exemptions -6,900.00
Taxable income -0-
Tax -0-
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Issue (7): Petitioner's Claim for Overpayment
Based on the foregoing calculation, and recalling that $20
was withheld from petitioner's wages by Show Low, we hold that
petitioner overpaid her tax by $20.4
We reject petitioner's claim for an overpayment in an amount
greater than the amount of her withholding. The full $352,100.75
claim made in the Form 1040A is whimsical, if not capricious.
Negative gross income is not a concept that the Federal tax law
recognizes, and the amounts claimed by petitioner as "tax
withheld", "estimated tax payment", and "tax informant fee" are
simply not payments of tax that could give rise to an
overpayment.
Issue (8): Penalty Under Section 6673
Respondent has not moved for the imposition of a penalty
under section 6673. Nevertheless, we think it appropriate to
consider the matter. See Schramm v. Commissioner, T.C. Memo.
1991-523, affd. without published opinion 988 F.2d 121 (9th Cir.
1993).
As relevant herein, section 6673(a)(1) authorizes the Tax
Court to require a taxpayer to pay to the United States a penalty
not in excess of $25,000 whenever it appears that proceedings
have been instituted or maintained by the taxpayer primarily for
4
Whether or not the Form 1040 constitutes a valid
return, an issue we do not and need not reach, we think that it
constitutes a valid claim for refund. Cf. Commissioner v. Lundy,
516 U.S. 116 S.Ct. 647 (1996).
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delay or that the taxpayer's position in such proceeding is
frivolous or groundless.
Although it might seem odd to consider imposing a penalty
under section 6673 when we have not sustained respondent's
determination regarding the deficiency and addition to tax, we
note the following: First, petitioner prevailed in this case
only because the Court, not petitioner, raised the community
property issue. Second, petitioner's interest in this case has
been principally, if not exclusively, to pursue matters
pertaining to prior taxable years that have absolutely no
relevance to the taxable year in issue. The Form 1040A submitted
by petitioner reflects a fanciful approach to her Federal income
tax responsibilities, and the contentions made in support of that
form are without merit.
Notwithstanding the foregoing, we have decided not to
exercise our discretion to impose a penalty under section 6673,
in part because of our concern that petitioner may be acting at
the misguided direction of Mr. Mischel. Nevertheless, petitioner
should understand that persistence in this Court in pursuing the
overpayment claimed in the Form 1040A in a subsequent case may
result in the imposition of a penalty under section 6673.
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To give effect to the foregoing,
A decision for petitioner
will be entered that there
is no deficiency and no
addition to tax under section
6651(a)(1), and that there is
an overpayment in the amount
of $20, for the taxable year
1992.