*44 Decision will be entered under Rule 50.
1. Joint Return -- Signing -- Tacit Consent -- Accepting Benefits. -- The petitioner acquiesced in and gave her tacit consent to the filing of a joint return on which her name was signed by another.
2. Fraud -- Admission by Husband. -- A waiver of restrictions against assessment of an addition to the tax for fraud, signed by the husband, while in prison, in the belief that it would help hasten his parole, held inadequate to sustain the Commissioner's burden of proving fraud by clear and convincing evidence.
*270 The Commissioner determined a deficiency in income tax for 1951 in the amount of $ 3,080.80 and an addition of $ 1,540.40 for fraud under section 293 (b). The issues for decision are whether the Commissioner erred in determining (1) that the petitioner elected to file and filed a joint income tax return for 1951 and (2) if she filed a joint return, that she is liable for the deficiency and the addition to the tax under section 293 (b).
FINDINGS OF FACT.
The petitioner is the wife of Russell R. Heim. They were married on May 28, 1949, and have one child, a daughter, born April 9, 1950. They lived together at all times material hereto. Russell was a physician. He was coroner of Hennepin County, Minnesota, during 1951 and he also had an office for the practice of medicine.
The petitioner was employed for a number of years, including 1951, by the Hennepin County Welfare Board as a social worker. Her salary for 1951 was $ 4,095.22, from which her *46 employer withheld $ 627.20 for Federal income taxes.
The petitioner filed separate income tax returns for the years 1949, 1950, 1952, and succeeding years but did not file a separate return for 1951. She prepared and filed her returns for 1949 and 1950. Those for 1949 and 1950 were in her maiden name. Her later returns were in her married name. She used her maiden name in the 1949 and 1950 returns so that Russell's remarriage would not be known during a political campaign in which he was then engaged.
R. O. Salisbury prepared Russell's returns for the years 1942 through 1952. Russell told Salisbury that he and his wife desired to file a joint return for 1951. Russell requested the petitioner, prior to *271 March 15, 1952, to give Salisbury the information pertaining to her 1951 income tax and to allow Salisbury to handle the matter for her. She delivered to Salisbury her 1951 W-2 withholding tax form, and he asked her how much Minnesota State income tax she had paid for 1951. He said he would obtain the figure since she was not sure of it. She gave Salisbury no instructions as to the type of return, separate or joint, to be prepared. The petitioner gave Salisbury no *47 authority to sign a return for her, expected to sign the return being prepared for her, and called Salisbury on March 15, 1952, to ask what he had done about her return for 1951. He told her he had signed her name to a return and sent it in. She thought that fulfilled her duty to file a return for 1951. She did not inquire, was not told, and did not learn from Salisbury at that time whether the return filed on her behalf was a joint return or a separate return. She did not see and made no effort to see, prior to the fall of 1953, a copy of the return filed for 1951.
A Form 1040 return for 1951 headed "Dr. Russell R. and Murial [sic] Heim" was filed with the collector of internal revenue for the district of Minnesota on March 17, 1952. The return was signed by Salisbury as the person who had prepared the return, and by Russell as taxpayer. Salisbury, at Russell's request, wrote "Muriel Heim" on the line, below Heim's signature, designated as the place for the signature of the wife if the return was joint. Salisbury did not write in the petitioner's name in his usual handwriting. The petitioner's salary of $ 4,095.22 from Hennepin County and the income tax withheld thereon*48 in the amount of $ 627.20 were reported on the return, together with salary of $ 6,300 from Hennepin County and income tax withheld thereon in the amount of $ 913.20. Other items were reported on the return, including cash receipts of $ 3,803.78 from medical practice, less expenses of $ 3,257.35, or a net income from medical practice of $ 546.43. Four exemptions (two for Russell "65 or over") were claimed on the return. $ 726.46 was shown as the tax due on the return and $ 1,540.40 was shown as the tax withheld. Refund of the resulting overpayment of $ 813.94 was requested on the return.
The Treasurer of the United States issued a check on June 16, 1952, in the amount of $ 946.23 payable to "Dr. Russell R. & M. Heim." The check showed on its face that it was drawn for the purpose of making a "tax refund." The petitioner and Russell both endorsed that check and it was paid on June 18, 1952. The petitioner knew that it represented a joint tax refund.
Salisbury prepared the petitioner's separate return for 1952 at her request. She signed that return and it was received by the director of *272 internal revenue on February 12, 1953. It contained a statement that the petitioner*49 had filed a joint return for 1951.
The notice of deficiency was mailed to the petitioner on August 13, 1954. It contained, inter alia, the following statements:
In making this determination of your income tax liability, careful consideration has been given to the report of examination dated November 30, 1953, a copy of which was furnished to you under date of February 26, 1954, and to your protest dated March 23, 1954, and to statements made at the conference held on July 22, 1954.
In accordance with provisions of Section 51 (b) of the Internal Revenue Code, you elected to and did file a joint income tax return for the taxable year ended December 31, 1951, with your husband, Dr. Russell R. Heim, on March 17, 1952, disclosing a joint tax liability in the amount of $ 726.46. On the basis of the information set forth on your income tax return, you were entitled to and did receive a refund of income tax in the amount of $ 935.94.
It is now determined that there are deficiencies in income tax and penalty in the respective amounts of $ 3,080.80 and $ 1,540.40 for the taxable year ended December 31, 1951, and that you are jointly and severally liable for said deficiencies in tax and*50 penalty in accordance with Section 51 (b) of the Internal Revenue Code.
| ADJUSTMENTS TO NET INCOME. | |
| Taxable year ended December 31, 1951. | |
| Net income as disclosed by return | $ 5,361.12 |
| Unallowable deductions and additional income: | |
| (a) Decrease in loss from rentals | 1,050.96 |
| (b) Increase in profit from business or profession | 9,576.23 |
| (c) Decrease in interest expense | 1,312.17 |
| (d) Decrease in taxes paid | 77.05 |
| Net income as adjusted | $ 17,377.53 |
Russell was sentenced on November 10, 1952, to serve 4 years in a Federal penitentiary for narcotics violations and was released on April 9, 1954.
The deficiency of $ 3,080.80 and the addition of $ 1,540.40 were assessed against Russell on February 26, 1954, pursuant to a waiver theretofore signed by him while in a Federal penitentiary.
The record does not contain clear and convincing evidence that any part of the deficiency for 1951 was due to fraud with intent to evade tax.
All stipulated facts are incorporated herein by this reference.
OPINION.
The petitioner contends that she is not jointly and severally liable for any deficiency or addition to the tax based upon a *273 joint return of herself and her husband for *51 1951 because she did not sign any such return, did not authorize the signing or filing of any such return on her behalf, and did not know until about a year and a half later that the return filed in her behalf for 1951 was in the form of a joint return. The Commissioner received what he had every reason to believe was a genuine joint return, he took all of his subsequent actions relying upon it as a joint return and has not proceeded against the petitioner for her failure to file a separate return for 1951. The first question is whether the return filed for 1951 is sufficient basis on which to hold the petitioner jointly and severally liable for any deficiency and addition to the tax properly determined on the basis of such a return.
No great help can be obtained from prior decisions in deciding a difficult case like this, since each such case must be decided upon its own facts and differences in the facts distinguish the cases. However, the cases establish the general principle that there can be a binding joint return even though one of the spouses has failed to sign it. "The mere fact that she [the wife] did not sign the returns is not sufficient" to show that a return filed *52 was not a joint return. W. L. Kann, 18 T. C. 1032, 1045, affd. 210 F. 2d 247, certiorari denied 347 U.S. 967">347 U.S. 967. The following is from Myrna S. Howell, 10 T. C. 859, 866, affd. 175 F. 2d 240:
The 1941 return is not signed by the petitioner. Her failure to sign that return is not alone determinative. It was held in Joseph Carroro, 29 B. T. A. 646, 650, that where a husband filed a joint return, without objection of the wife, who failed to file a separate return, it will be presumed the joint return was filed with the tacit consent of the wife. * * *
See also Walter M. Ferguson, Jr., 14 T. C. 846; Hyman B. Stone, 22 T. C. 893, 900, appeal dismissed. Cf. Elsie S. Bour, 237">23 T. C. 237, 239-240.
The petitioner and her husband, during all of 1951 and at all other times material hereto, were living together as husband and wife. The tax due on a joint return of the petitioner and her husband for 1951 is substantially less than*53 the total tax due if they had filed separate returns for that year. Her husband knew this, fully intended to file a joint return for that year, and to that end requested the petitioner to furnish his accountant with the information pertaining to her income tax liability for 1951. The petitioner knew that she was required to file an income tax return for 1951 and had no intention of failing in that duty. She furnished the required information to Salisbury but she did not sign any return for that year. Salisbury informed her at the time that he had prepared a return, had signed her name to it, and it had been sent in.
*274 Salisbury incorporated the information furnished him by the petitioner in a joint return for the petitioner and her husband, it bore the names of the husband and of the wife, it included the income, deductions, exemptions, and credits of each, and signed to it were the names of each. The Internal Revenue Service, with which it was filed, had every reason to believe that it was a genuine joint return and proceeded on that basis. The tax computed on that return was less than the total tax withheld from the salaries of the husband and of the petitioner. Indeed, *54 the total tax shown on the return was little more than the total tax withheld from the petitioner. A refund of the overpayment was requested on the return, each was entitled to a part of that refund, and a check in payment of that refund, made out to the husband and wife, was sent to them, received by them, endorsed by them, and cashed.
The petitioner testified that "my whole income tax situation was looked after by Mr. Salisbury." Salisbury testified that he told the petitioner that she and her husband should file a joint return for 1951 and "she was for it" and expressed no objection. She claims that she never knew until late in 1953 that the return filed in her name for 1951 had been a joint return, but the refund check should have made her aware of that fact, and on her 1952 return prepared by Salisbury at her request, signed by her, and filed on February 12, 1953, there is a statement indicating that she had filed a joint return for 1951. It is difficult to see how the petitioner could have remained ignorant until the latter part of 1953 that the only return filed in her name for 1951 was a joint return.
The record clearly shows that the petitioner knew immediately after the*55 acts were performed that a return for her for 1951 to which Salisbury had signed her name had been filed, and she acquiesced in those acts since she made no effort to correct or change anything which had been done but was content to accept what had been done as a compliance with the law requiring the filing by her of an income tax return for 1951. She testified that she did not know that the return filed for her was a joint return, but about 3 months thereafter she observed that the check mailed to her and her husband was for a refund of taxes and was made out in the joint names of herself and of her husband. She accepted the benefits of the joint return by endorsing the check and allowing it to be paid. It is only fair to conclude from all of the evidence in this case that the petitioner acquiesced in and gave her tacit consent to the filing of the joint return for 1951 and cannot avoid the consequences of the filing of that return.
*275 The Commissioner, in his determination, has disallowed two deductions claimed on the joint return. The remaining deductions allowed by the Commissioner are less than the standard deduction. The Commissioner in such cases usually gives the*56 taxpayers the benefit of the standard deduction, Harold R. Johnson, 17 T. C. 1261, 1264; Gussie P. Chapman, 14 T. C. 943, 945, affd. 191 F.2d 816">191 F. 2d 816, certiorari denied 343 U.S. 905">343 U.S. 905, and the same thing should be done here. The petitioner has not shown that any of the other adjustments made by the Commissioner in determining the deficiency was erroneous.
The Commissioner has the burden of proof to show by clear and convincing evidence that a part of the deficiency in this case was due to fraud with intent to evade tax. He has failed to sustain that burden. He called two witnesses who testified that they paid some cash to Russell, but the Commissioner failed to show clearly and convincingly that any cash was received from that source or, if received, that it was not reported on the joint return. The parties stipulated "that a waiver of restrictions was presented to Dr. Heim while he was serving time in federal prison and that he did sign it and that in legal effect on the face of it, it constitutes an admission that he owes the tax and is liable for penalties." Russell*57 testified that he signed the document in the belief that it would enable him to apply for a parole at the end of one-third of his sentence. The evidence in regard to the waiver does not properly sustain the Commissioner's burden of proving by clear and convincing evidence that a part of the deficiency was due to fraud with intent to evade tax in the circumstances of this case. His testimony in this case does not indicate that a part of the deficiency was due to fraud with intent to evade tax.
Decision will be entered under Rule 50.
Opper, J., dissenting: This is supposed to be "a question of fact," Arlington F. Brown, 24 T.C. 256">24 T. C. 256, 265, "the answer" to which is supposed to rest "on a determination of the intent of the taxpayer. Myrtle O. Calhoun, 23 T. C. 4 (1954)." Elsie S. Bour, 237">23 T. C. 237, 239.
The factual issue here apparently narrows to whether petitioner should be held to have signed the joint return. If she did not, it was not her return and she would not be liable on it. Regs. 111, sec. 29.51-1. See McCord v. Granger, (C. A. 3) 201 F. 2d 103.*58 Cases holding that the physical presence of the wife's signature is unnecessary are typified *276 by W. L. Kann, 1032">18 T. C. 1032, 1045, affd. (C. A. 3) 210 F. 2d 247, certiorari denied 347 U.S. 967">347 U.S. 967, where we said: "Petitioner * * * having failed to take the stand, or produce any evidence on her own behalf, has not sustained her burden of proof that these were not joint returns." Of course there would be no denial from her under oath that she had authorized someone else, usually her husband, to sign the return. That is the origin of the "tacit consent" theory. There can be no question here that petitioner did not physically sign the return but it is apparently concluded that she authorized someone to do so for her. She testified repeatedly and unequivocally that she did not authorize or ratify the signing or filing of any return and, as the one who heard and observed the witnesses, I believe her. My finding of fact would accordingly be that she did not sign the return nor authorize its signature, that she did not intend to file a joint return, and that accordingly she did not do so.
The Opinion*59 apparently accepts Salisbury's testimony as true. Some of the factual conclusions can be derived from no other source. Yet at a number of points his testimony conflicted with that of petitioner. As the one who heard and observed the witnesses, I believe petitioner was telling the truth. 1 My findings of fact would accordingly be quite different from those now made by Judges who did not participate in the trial.
It is not clear to me whether the present Opinion presupposes that the petitioner was not telling the truth, or whether even if she was, a joint return must be presumed as a matter of law to have resulted. While it is difficult to be sure what the theory of the present Opinion is, it may be one of misrepresentation or estoppel. The philosophy seems to go like this: A return apparently signed by the wife directly or by her agent was*60 accepted as a joint return by the respondent. He relied on its appearance and acted upon it and, accordingly, any detriment that he or the Treasury suffered must be recovered from the innocent bystander. If this return was unauthorized as a joint return, as I think it was and as in fact the evidence indicates it was, 2 then the missing taxes should have been sought from the husband, who did sign the return. But it does not make a joint return out of *277 one that was separate nor justify imposing this unconscionably heavy burden upon a nonparticipant and no case can be produced to authorize it.
Unless we are making new law and overthrowing the only existing precedents, there are but two other grounds upon which this result could rest if regarded as a legal question. An item*61 of petitioner's income was included on the return when it was filed without her knowledge or consent. This is not enough to create a joint return in the absence of such an intention. Alma Helfrich, 25 T.C. 404">25 T. C. 404, 407; McCord v. Granger, supra, at 106; Elsie S. Bour, supra;Arlington F. Brown, supra.
Of course petitioner should have filed a separate return. So should the women in the cases cited, but the fact that petitioner had taxable income and failed to file a return does not justify the conclusion, without more, that a joint return was intended. Arlington F. Brown; Myrtle O. Calhoun; Elsie S. Bour; McCord v. Granger, all supra. Petitioner had no deductions of any kind. Her salary, although included by the accountant without her consent or knowledge on the joint return, was subject to withholding. Petitioner had in mind that "generally my withholding just took care of the amount that was due." This seems to me a sufficiently reasonable cause for the omission to file a separate return. Sec. 291, I. R. C. 1939. If*62 it is not, and she is liable for penalties, these would be prescribed by statute as 25 per cent of the tax due -- in this case, approximately $ 5. Instead, the penalty determined against her, including one for a fraud in which concededly she did not participate, was $ 4,621.20, much more than her total income. But whatever the statutory penalty for failing to file a return if due, the cases cited hold clearly that it does not justify imputing an intention to file a joint return if the disavowal of such an intent is believed.
Fisher, J., dissenting: Judge Opper was the trier of the facts in this case. As such, he had the opportunity to see and hear the witnesses as well as to analyze the record. In his dissenting opinion, he says, in part:
There can be no question here that petitioner did not physically sign the return but it is apparently concluded that she authorized someone to do so for her. She testified repeatedly and unequivocally that she did not authorize or ratify the signing or filing of any return, and as the one who heard and observed the witnesses, I believe her. My finding of fact would accordingly be that she did not sign the return nor authorize its signature, *63 that she did not intend to file a joint return, and that accordingly she did not do so.
*278 In my opinion, the views of the trial Judge on the facts should not be disturbed in the absence of clear error. I find no such error here and, in my judgment, the opinion of the majority fails to establish any.
Footnotes
1. This applies, for example, to her statement that she endorsed the refund check without knowing that it came from a joint return and that she received none of its proceeds.↩
2. Salisbury testified, for example:Q. But you didn't deliver anything to Mrs. Heim?
A. No, I never do in the case of a joint return, I deliver it to the people who I get an order on.Q. And you didn't get an order from Mrs. Heim?
A. No.↩