T.C. Memo. 2001-21
UNITED STATES TAX COURT
JULIAN O. VON KALINOWSKI AND PENELOPE J. VON KALINOWSKI,
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 46200-86. Filed January 30, 2001.
Philip R. Linsley, for petitioners.
David R. Jojola, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: For 1981 and 1982, respondent determined
deficiencies in petitioners’ Federal income taxes and additions
to tax as follows:
Additions to Tax
Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2)
1
1981 $182,296 $9,114.80
1
1982 81,495 4,074.75
1
50 percent of interest due on the deficiency for the
relevant year.
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After concessions,1 the sole issue for decision is whether
petitioner wife is entitled to relief from joint and several
liability under section 6015(b)(1).2
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. References to petitioner in the singular are to
Penelope J. Von Kalinowski.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
their petition with the Court, petitioners were residents of Los
Angeles, California.
Petitioners jointly filed a Form 1040, U.S. Individual
Income Tax Return, for each of the taxable years at issue. With
respect to taxable year 1981, petitioners twice filed an amended
1
Without considering the application of the relief
provisions of sec. 6015 to petitioner Penelope J. Von Kalinowski,
petitioners concede deficiencies of $179,230 and $81,495 for tax
years 1981 and 1982, respectively. Respondent concedes the
additions to tax under sec. 6653(a)(1) and (a)(2).
2
Sec. 6015 was added by sec. 3201(a) of the Internal
Revenue Service Restructuring and Reform Act of 1998, Pub. L.
105-206, 112 Stat. 734. Sec. 6015 is effective with respect to
any tax liability arising after July 22, 1998, and any tax
liability arising on or before July 22, 1998, that is unpaid on
that date.
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return. On their 1982 return, petitioners claimed an investment
tax credit in excess of their income tax liability. Petitioners
accordingly filed joint and separate Forms 1045, Application for
Tentative Refund, in order to apply the excess credit against
their tax liabilities from prior years.3
Background
Petitioner was born and educated in the United Kingdom. She
graduated from the London College of Secretaries in 1967, and she
attended Saint Thomas College from 1975 to 1976. During her
studies at Saint Thomas College, petitioner completed a one
semester course in financial accounting.
From 1972 until 1978, petitioner was employed by Pfizer
Corp. (Pfizer) to coordinate the provision of secretarial and
administrative services to a team of lawyers that represented the
company in ongoing antitrust litigation.4 While working at
Pfizer, petitioner met her future husband, Julian O. Von
Kalinowski. An experienced attorney with the firm of Gibson,
Dunn and Crutcher, L.L.P., Mr. Von Kalinowski led the team of
attorneys for whom petitioner provided administrative support.
3
In addition to jointly filing Form 1045 seeking a
carryback of the excess investment credit to 1980, petitioners
separately filed Forms 1045 seeking a carryback of the excess
investment credit to 1979 (a tax year which preceded petitioners’
marriage).
4
Petitioner’s accounting responsibilities at Pfizer
consisted of limited bookkeeping, which was mostly handled by a
secretary on her behalf.
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Mr. Von Kalinowski specialized in the fields of antitrust law and
complex litigation, and over the years he has authored legal
treatises on these subjects. From 1972 to 1973, Mr. Von
Kalinowski served as chairman of the antitrust section of the
American Bar Association.
Petitioner moved in with Mr. Von Kalinowski in October of
1979, and the couple married on June 29, 1980.5 At the time of
their marriage, petitioner was 32 years of age and Mr. Von
Kalinowski was 64 years of age. Petitioners remained married at
the time of trial.
Standard of Living
Both prior to and following the couple’s marriage, Mr. Von
Kalinowski maintained petitioner in what can be reasonably
described as an affluent lifestyle. Throughout their marriage,
the couple has resided in a townhouse located in Los Angeles,
California (the residence), which Mr. Von Kalinowski purchased in
1979 for $342,290. At all relevant times, Mr. Von Kalinowski
maintained a membership at the Los Angeles Country Club. Mr. Von
Kalinowski also made a number of gifts to petitioner around the
time of their marriage. He allowed petitioner to use one of his
vehicles until he purchased a new BMW automobile for her in 1980.
5
Petitioners did not enter into an antenuptial agreement,
nor have they entered into any post-nuptial agreements concerning
their property.
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Mr. Von Kalinowski gave petitioner an engagement ring and wedding
band in conjunction with their marriage, and shortly thereafter,
he bought her a fur coat costing approximately $4,000.
Petitioners took a number of trips from 1980 to 1983, yet
virtually all of them were related to Mr. Von Kalinowski’s
profession. The lone exception was a safari vacation to Kenya
which the couple took in either 1982 or 1983.
Petitioner’s Business Endeavors
Around the time of the couple’s marriage, Mr. Von Kalinowski
expressed his desire that petitioner not work outside of the home
in order that she could accompany him on his extensive business
travels and assist him with his social responsibilities. The
couple later discussed the possibility of petitioner's starting
her own business in order to accommodate petitioner’s desire to
work in a manner that would allow her to maintain autonomy over
her schedule.
In 1980, petitioner started Peter Dyer Interiors, a business
through which petitioner imported oil paintings for resale and
provided interior design services. Peter Dyer Interiors was
operational during 1981 and 1982, and generated net operating
losses of $4,322 and $9,740 during those years, respectively.
During 1983, petitioner took courses to become a travel
agent. In 1984, she and a faculty member of the school she
attended started a travel agency known as Windsor Travel.
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Petitioner and Mr. Von Kalinowski borrowed the funds for
petitioner’s share of the startup costs. In 1985, petitioner and
Mr. Von Kalinowski bought out petitioner’s co-owner in the travel
agency for approximately $25,000.
Windsor Travel was operational from 1984 to 1999. Over this
time period, Mr. Von Kalinowski invested over $500,000 in the
business on behalf of petitioner, and such amounts were used to
fund the operations of the agency. In 1999, petitioner sold the
assets of Windsor Travel for approximately $25,000 plus a sliding
percentage of revenue generated from the transferred accounts.
Financial Matters
Petitioner and her husband maintained two bank accounts.
While each of these accounts was titled in the couple’s joint
names, the couple regarded one as petitioner’s checking account
and the other as Mr. Von Kalinowski’s checking account.
Petitioner used the funds in her checking account to pay the
couple’s grocery bills and other personal expenses, and Mr. Von
Kalinowski made periodic deposits into this account for such
purposes. The bank statements on petitioner’s checking account
were sent to the couple’s residence and received by petitioner.
The bank statements on Mr. Von Kalinowski’s checking account
were sent to his office and received by his secretary, Gina
Hester. Ms. Hester served as Mr. Von Kalinowski’s personal
secretary from 1952 until just prior to his retirement in 1985,
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and she was responsible for handling Mr. Von Kalinowski’s
everyday financial affairs. For instance, Ms. Hester received
and deposited Mr. Von Kalinowski’s paychecks, she paid all
routine expenses such as insurance payments, mortgage payments,
and she made the payments due on Mr. Von Kalinowski’s outstanding
loans.
Given the responsibilities undertaken by Ms. Hester,
petitioner’s knowledge of the particulars of her husband’s
finances was limited. Petitioner, however, was aware that Mr.
Von Kalinowski made investment decisions on their joint behalf,
and she allowed him to do so without seeking her approval.
Husband’s Tax Shelter Investments
Respondent determined the deficiencies for the years at
issue based on the distributive shares of the following
partnerships: Diversified Investments Group (Diversified),
Capricorn Company (Capricorn), and Pisces Company (Pisces)
(collectively, the tax shelter investments). Mr. Von Kalinowski
invested approximately $10,000 in Diversified upon the suggestion
of a law partner and following a meeting with Diversified’s
promoter. Mr. Von Kalinowski did not consult petitioner with
respect to this investment.
Mr. Von Kalinowski became interested in Capricorn and Pisces
(the partnerships) when another law partner introduced him to an
individual named Togo Tanaka. In addition to being a member of
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the local Rotary club, Mr. Tanaka was represented to be a member
of the board of governors of the Federal Reserve Bank of San
Francisco. Mr. Tanaka in turn introduced Mr. Von Kalinowski to
Philip Siriani, a businessman who had contacts with a local bank
willing to finance the investment in the partnerships. Mr.
Tanaka’s position in the community and Mr. Siriani’s apparent
business and political contacts supplied a measure of credence to
the financial benefits and tax advantages purportedly offered by
the partnerships. Mr. Von Kalinowski was further assured of the
partnerships’ legitimacy when informed that a former U.S. senator
was also investing.6
Near the end of 1981, Mr. Von Kalinowski purchased limited
partnership interests in the partnerships. He financed the
investment through a $140,000 bank loan secured by the couple’s
residence. Although the residence was titled in Mr. Von
Kalinowski’s individual name and constituted his separate
property, both Mr. Von Kalinowski and petitioner executed the
deed of trust in favor of the bank.7
Petitioner had limited, if any, knowledge of her husband’s
6
Former U.S. Senator S.I. Hayakawa is listed as a limited
partner on Capricorn’s certificate of limited partnership.
7
Presumably, the bank required petitioner’s signature on
the deed of trust to protect its security interest from any
spousal claims which petitioner may have had against the property
under California property law.
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investments in the tax shelter investments. Not only did Mr. Von
Kalinowski not consult petitioner prior to investing, he did not
discuss the investments with her during the tax years at issue.
The Schedules K-1, Partner’s Share of Income, Credits, Deduction,
etc., issued by the partnerships to Mr. Von Kalinowski were sent
to his home address. It was petitioner’s general practice,
however, not to open mail addressed to her husband. Upon
receipt, Mr. Von Kalinowski would forward the Schedules K-1 to
his accountant.
Preparation of Income Tax Returns
The tax returns for the years at issue were prepared by
Stanley Breitbard, a certified public accountant with the firm of
Price Waterhouse. As a means of compiling the information
necessary to prepare the couple’s return, Price Waterhouse sent
various informational schedules to Mr. Von Kalinowski for
completion. These schedules were completed by Ms. Hester on Mr.
Von Kalinowski’s behalf.8 Petitioner compiled the tax
information relating to her sole proprietorship and forwarded
such information to the accountant.
After the return was completed, either Mr. Breitbard or
someone from his office would review it with Mr. Von Kalinowski.
Mr. Von Kalinowski would then take the return home for
petitioner’s signature. Petitioner consistently executed the
8
Mr. Von Kalinowski’s business address was used for each
of the returns at issue because the couple’s tax records were
maintained there.
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returns at issue without reviewing their contents. At no point
did petitioner request an explanation of the returns prior to
signing them.
Each of the returns at issue was signed by Mr. Breitbard on
behalf of Price Waterhouse as the paid preparer. Mr. Breitbard
did not highlight for Mr. Von Kalinowski any potential problems
with respect to the tax benefits claimed from the tax shelter
investments, and Mr. Von Kalinowski believed the returns to be
correctly prepared when he signed them.
Contents of Tax Returns
Mr. Von Kalinowski’s distributive share of income from his
law firm for the 1981 and 1982 taxable years was $391,474 and
$291,348, respectively. In addition, the legal treatises which
Mr. Von Kalinowski authored generated gross income of $65,171 and
$78,915 for the 1981 and 1982 tax years, respectively.
The tax shelter investments generated combined losses of
$368,675 for the 1981 tax year. For the 1982 tax year, the
combined partnership losses were $228,133. Furthermore, in 1982
the tax shelter investments generated an investment income tax
credit of $13,616 with respect to which petitioners filed the
Forms 1045.
Petitioners’ Current Financial Status
Throughout the term of their marriage, petitioners have
utilized income received by Mr. Von Kalinowski for their joint
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support. Mr. Von Kalinowski retired from his law firm in 1985 at
the age of 68. During the years 1995 through 1999, his
retirement income from the firm averaged $280,000. During this
same time period, Mr. Von Kalinowski’s royalty income derived
from his legal treatises averaged $147,000 annually. Lastly, Mr.
Von Kalinowski receives an annual pension from the Naval Reserve
of $17,138.9
Petitioner is currently employed as the executive vice
president of the Museum of Flying in charge of development. Her
annual salary is $70,000.
Mr. Von Kalinowski maintains a $1 million life insurance
policy of which petitioner is the designated beneficiary. While
Mr. Von Kalinowski’s pension income from the law firm terminates
upon his death, his royalty income from the treatises continues
at 60 percent of its current rate for a period of 15 years
following his death. Petitioner is the beneficiary of such
royalty income.
OPINION
A. Statutory Background
Section 6013(a) provides that spouses may elect to file a
9
Part of Mr. Von Kalinowski’s income must be applied
toward alimony obligations in favor of his first wife. During
1999, Mr. Von Kalinowski paid alimony in the amount of $47,577.
He is currently obligated to pay his ex-wife $3,233 per month,
plus one-half of his pension from the Naval Reserve.
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joint Federal income tax return. If a husband and wife file a
joint return, the tax is computed on their aggregate income and
the liability with respect to such tax is joint and several. See
sec. 6013(d)(3). Section 6015, however, provides various means
by which a spouse can be relieved of this joint and several
obligation. Petitioner makes her claim for such relief pursuant
to section 6015(b)(1).
To qualify for statutory relief from joint and several
liability under section 6015(b)(1), a taxpayer must establish
that: (1) A joint return was made under section 6013, see sec.
6015(b)(1)(A); (2) there was an understatement of tax
attributable to erroneous items of the other spouse, see sec.
6015(b)(1)(B); (3) at the time of signing the return, the spouse
seeking relief did not know and had no reason to know of such
understatement, see sec. 6015(b)(1)(C); and (4) taking into
account all the facts and circumstances, it is inequitable to
hold the spouse seeking relief liable for the deficiency in tax
attributable to the understatement, see sec. 6015(b)(1)(D).10
The requirements of section 6015(b)(1) are stated in the
conjunctive. Accordingly, a failure to meet any one of them
prevents a spouse from qualifying for the relief offered therein.
10
As a procedural matter, a spouse seeking relief under
sec. 6015(b) must also submit the claim for relief within 2 years
of the date on which the Secretary begins collection activities
with respect to such spouse. See sec. 6015(b)(1)(E).
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We have found that petitioners filed a joint return for each of
the years in issue, and respondent concedes that there was an
understatement of tax attributable to Mr. Von Kalinowski.
Accordingly, we shall address whether petitioner lacked actual
and constructive knowledge of the understatements as required by
section 6015(b)(1)(C) as well as whether it is inequitable to
hold petitioner liable for the understatements as required by
section 6015(b)(1)(D). Petitioner carries the burden of proof as
to each of these elements. See Rule 142(a).
B. Relation Between Sec. 6015(b)(1) and Former Sec. 6013(e)
Before delving into the particulars of section 6015(b)(1),
we pause to note its relation to former section 6013(e). In
1971, Congress enacted section 6013(e) in order to correct
perceived grave injustices resulting from the imposition of joint
and several liability. See S. Rept. 91-1537, at 2 (1970), 1971-1
C.B. 606, 607; see also Act of Jan. 12, 1971, Pub. L. 91-679,
sec. 1, 84 Stat. 2063 (enacting sec. 6013(e)), as amended by the
Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 424, 98 Stat.
494, 801. Section 6013(e), as amended, provided that a spouse
could be relieved of joint and several liability if the spouse
proved that: (1) A joint income tax return was filed; (2) the
return contained a substantial understatement of tax attributable
to grossly erroneous items of the other spouse; (3) in signing
the return, the relief-seeking spouse did not know, and had no
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reason to know, of the substantial understatement; and (4) under
the circumstances it is inequitable to hold the relief-seeking
spouse liable for the substantial understatement.
For many taxpayers, relief under section 6013(e) was
difficult to obtain. In order to make such relief more
accessible, Congress repealed section 6013(e) and enacted a new
provision (section 6015) in 1998 as part of the Internal Revenue
Service Restructuring and Reform Act of 1998, Pub. L. 105-206,
sec. 3201(a), 112 Stat. 734. See H. Conf. Rept. 105-599, at 249
(1998). The newly enacted section provides three avenues of
relief, one of which is section 6015(b)(1). See Cheshire v.
Commissioner, 115 T.C. 183, 189 (2000). While section 6015(b)(1)
is a modified version of former section 6013(e), none of the
differences are relevant to the present litigation. Accordingly,
in analyzing the provisions of section 6015(b)(1) in the present
context, we shall make use of case law interpreting identical
provisions under former section 6013(e). See Butler v.
Commissioner, 114 T.C. 276, 283 (2000) (noting that cases
interpreting former section 6013(e) remain instructive as to the
analysis of whether a taxpayer knew or had reason to know of an
understatement pursuant to section 6015(b)).
C. Actual or Constructive Knowledge–-Sec. 6015(b)(1)(C)
Pursuant to section 6015(b)(1)(C), petitioner must establish
that she did not know and further had no reason to know of the
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understatement in tax on the joint returns which she filed with
her husband. In the context of an understatement resulting from
deductions claimed in error, the United States Court of Appeals
for the Ninth Circuit (the circuit where an appeal of this
decision would lie) interpreted this requirement as follows: “It
requires a spouse seeking relief to establish that she did not
know and did not have reason to know that the deduction would
give rise to a substantial understatement.” Price v.
Commissioner, 887 F.2d 959, 963 (9th Cir. 1989), revg. an oral
opinion of this Court; see also Hayman v. Commissioner, 992 F.2d
1256, 1261 (2d Cir. 1993), affg. T.C. Memo. 1992-228; Stevens v.
Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989), affg. T.C.
Memo. 1988-63.
We are satisfied that petitioner lacked actual knowledge of
the understatement. We therefore turn to whether petitioner had
reason to know of the understatement.
A spouse has “reason to know” of the understatement if a
reasonably prudent taxpayer in his or her position at the time of
signing the return could be expected to know that the return
contained the understatement. Price v. Commissioner, supra at
965. Factors to be considered in determining whether the spouse
had reason to know of the understatement 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
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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. See Hayman v. Commissioner,
supra at 1261; Price v. Commissioner, supra at 965.
1. Facts Supporting a Finding that Petitioner Lacked
Constructive Knowledge of Understatement
On one hand, certain of the above-mentioned factors indicate
that petitioner did not have reason to know of the understatement
of tax contained in the couple’s 1981 and 1982 tax returns.
First, petitioner had no role in the couple’s finances beyond
making payments for household expenses. All other matters were
the responsibility of her income-producing counterpart, a
responsibility which he in turn delegated to his personal
secretary. While Mr. Von Kalinowski did not seek to hide any
financial information from petitioner, the two simply did not
discuss such matters beyond mere generalities. In keeping with
this general practice, petitioner was at no time aware of her
husband’s participation in the tax shelter investments.
Second, as reflected in the findings of fact, petitioners
maintained a reasonably affluent lifestyle both prior to their
marriage and during the years which followed. Petitioner
testified that she did not experience a change of lifestyle
during the tax years at issue, and we find her testimony credible
in this regard. We are satisfied that nothing about petitioners’
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standard of living or spending habits would have alerted her to
the fact that her and her husband’s tax obligations were not
being accurately reported.
2. Facts Supporting a Finding That Petitioner Possessed
Constructive Knowledge of Understatement
While certain considerations in this case support a finding
that petitioner lacked constructive knowledge of the
understatement, others support a contrary conclusion. Petitioner
is not unsophisticated in financial matters. She is an educated
woman, and her studies included a course in financial accounting.
Petitioner worked for a number of years prior to her marriage,
presumably receiving paychecks, paying bills, and filing income
tax returns. Furthermore, during the tax years at issue,
petitioner ran her own sole proprietorship. Although not a large
enterprise, petitioner’s experience was certainly sufficient to
provide her an understanding of what it meant for a business to
incur a profit or a loss. With respect to her business,
petitioner prepared the tax information necessary to be included
on the tax return.
3. Duty of Inquiry
The facts supporting a conclusion that petitioner possessed
constructive knowledge of the understatement become increasingly
persuasive in light of the information that was included on the
tax returns which petitioner executed. Although petitioner did
not review the returns prior to signing them, she is charged with
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knowledge of their contents. See Hayman v. Commissioner, supra
at 1262; Terzian v. Commissioner, 72 T.C. 1164, 1170 (1979).
Petitioner is thus deemed to have known that, in 1981, the tax
shelter investments resulted in losses totaling $368,675 compared
to her husband’s law firm and royalty income of $456,645.
Similarly, petitioner is charged with knowledge that her
husband’s 1982 income from such sources of $370,263 was offset by
tax shelter losses of $228,133. “Tax returns setting forth large
deductions, such as tax shelter losses offsetting income from
other sources and substantially reducing * * * the couple’s tax
liability, generally put a taxpayer on notice that there may be
an understatement of tax liability.” Hayman v. Commissioner,
supra at 1262; see also Levin v. Commissioner, T.C. Memo. 1987-
67. We find that the size of the losses claimed on the return
should have alerted petitioner to question their legitimacy.11
Where a spouse has a duty to inquire as to the legitimacy of
a deduction, the failure to satisfy such duty may result in
constructive knowledge of the understatement being imputed to
her. See Price v. Commissioner, 887 F.2d at 965; see also Levin
v. Commissioner, supra. A spouse cannot obtain relief from joint
11
The investment tax credits generated by the tax shelter
investments and carried back by petitioners to prior tax years
(including years prior to their marriage) with respect to which
petitioners filed joint and separate Forms 1045 would seemingly
have provided petitioner with an additional justification to seek
more information regarding the investments.
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liability in a deduction case “‘by simply turning a blind eye
to–-by preferring not to know of–-facts fully disclosed on a
return, of such a large nature as would reasonably put such
spouse on notice that further inquiry would need to be made’”.
Price v. Commissioner, supra at 965 (quoting Levin v.
Commissioner, T.C. Memo. 1987-67). Petitioner made no inquiry as
to the validity of the deductions. Her duty of inquiry thus went
unfulfilled. Accordingly, we hold that petitioner possessed
constructive knowledge of the understatement for purposes of
section 6015(b)(1)(C).
D. The Equities–-Sec. 6015(b)(1)(D)
Even had petitioner satisfied the knowledge requirement
under section 6015(b)(1)(C), she would have failed to qualify for
relief from joint and several liability by reason of section
6015(b)(1)(D). Pursuant to section 6015(b)(1)(D), a spouse
seeking relief under section 6015(b)(1) must establish that it is
inequitable to hold him or her liable for the deficiency
attributable to the understatement. This determination must be
made based upon due consideration of all the facts and
circumstances. See sec. 1.6013-5(b), Income Tax Regs. For
reasons discussed below, we find that the imposition of joint and
several liability in this case is not inequitable.
Petitioner’s principal argument regarding the equities in
this case is grounded in the possibility that her husband will
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not satisfy the conceded deficiencies. Petitioner notes that
“Although [Mr. Von Kalinowski] may have the income and assets to
pay the liability there is no assurance that he will do so.”
From this, petitioner concludes that she will suffer “substantial
future hardship” if she is not relieved of the liability. The
hardship which petitioner describes is contingent upon (a) Mr.
Von Kalinowski's not satisfying the deficiencies during his
lifetime, and (b) Mr. Von Kalinowski's passing away and
disinheriting petitioner. We do not believe that this
hypothetical hardship is sufficient to satisfy the requirements
of section 6015(b)(1)(D). Rather, the statute requires that the
taxpayer demonstrate that the imposition of joint and several
liability is inequitable in present terms.
As things presently stand, petitioner and Mr. Von Kalinowski
remain married. The two have not separated, and petitioner has
not been left by her husband to “face the music”. Instead,
petitioner continues to enjoy the lifestyle and financial
security that are largely attributable to her husband’s assets
and income. Simply put, petitioner has not been deserted in the
sense foreseen by the legislators who enacted the predecessor to
the section 6015(b)(1) relief from joint liability. See Hayman
v. Commissioner, 992 F.2d at 1263; Meyer v. Commissioner, T.C.
Memo. 1996-400; Prince v. Commissioner, T.C. Memo. 1995-368.
Petitioner also contends that she did not significantly
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benefit from the tax savings generated by the understatement.
Whether the relief-seeking spouse has significantly benefited
from the understatement in tax is a factor to be considered in
weighing the equities. See sec. 1.6013-5(b), Income Tax Regs.
Transfers of property to the relief-seeking spouse are relevant
in determining the existence of a significant benefit, and such
transfers are not limited to the tax years to which the
understatement relates. See id. Mr. Von Kalinowski testified
that he contributed approximately $500,000 to petitioner’s travel
agency over the course of the 15-year period in which the
business was operational. These contributions were of obvious
benefit to petitioner, and the amount of such transfers renders
petitioner’s argument that she did not significantly benefit from
the tax savings unpersuasive.
Finally, a factor which may be taken into account in
weighing the equities is whether the failure to report the
correct tax liability in this case resulted from concealment,
overreaching, or other wrongdoing on the part of the spouse not
seeking relief. See Hayman v. Commissioner, supra at 1262; McCoy
v. Commissioner, 57 T.C. 732, 735 (1972). No such untoward
circumstances are present in this case. Rather, the
understatement in tax is attributable to a mistaken belief on the
part of Mr. Von Kalinowski as well as his accountant as to the
legitimacy of the tax shelter deductions. Under these
circumstances, we perceive no inequity in holding both spouses to
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joint and several liability. See Bokum v. Commissioner, 992 F.2d
1132, 1135 (11th Cir. 1993), affg. 94 T.C. 126 (1990); McCoy v.
Commissioner, supra at 735.
E. Conclusion
Petitioner is not entitled to relief from joint and several
liability pursuant to section 6015(b)(1) as she has failed to
satisfy the requirements of section 6015(b)(1)(C) and (D).
To reflect the stipulations of settled issues and our
determination herein,
Decision will be entered
under Rule 155.