SCOTT

James F. Green, for the petitioner. Charles L. Riter, for the respondent.

1. Joint Federal income tax returns voluntarily signed by both husband and wife without knowledge on the part of the wife of the omission from the income shown on the returns of amounts embezzled by her husband are joint returns so that under the provisions of sec. 6013(d)(3), I.R.C. 1954, the wife is jointly and severally liable for deficiencies in income tax and additions to tax resulting from fraud on the part of the husband for the years for which such joint returns were filed.

2. Where husband and wife filed separate petitions with this Court from a joint notice of deficiency, respondent has failed to show in the case of the wife omissions from gross income as reported on the returns of amounts properly includable therein in excess of 25 percent of the gross income reported because of his failure to show whether partnership returns were filed showing the partnership losses as reported on the returns and, if so, the amount of gross income reported on such partnership returns. The fact that the husband in his case stipulated deficiencies for the same years for which the wife claimed that assessment and collection of deficiencies were barred by the statute of limitations does not relieve respondent of proving that the exception to the statute of limitations provided in sec. 6051(e)(1)(A), I.R.C. 1954, is applicable.

FINDINGS OF FACT AND OPINION

SCOTT, Judge:

Respondent determined deficiencies in petitioner's income tax, additions to the tax under the provisions of section 6653(b), I.R.C. 1954,

for the years and in the amounts as follows:

+--+ ¦¦¦¦ +--+

Additions to tax Taxable year ending Dec. 31— Deficiency under sec. 6653(b), I.R.C 1954 1958 $173,579.02 $86,789.51 1959 188,520.54 94,260.27 1960 220,774.94 110,387.47 1961 403,129.00 201,564.50 1962 504,522.42 252,261.21 1963 539,898.77 269,949.38

By amended answer respondent claimed increases in deficiencies for the taxable years 1958, 1959, and 1960 in the amounts of $61,091.29, $45,054.36, and $1,308.66, respectively.

The issues for decision are:

(1) Whether the petitioner is jointly and severally liable for deficiencies in income tax and for some years for additions to tax resulting from omission from the income shown on the joint Federal income tax returns filed by petitioner and her husband for the taxable years 1958, 1959, 1960, 1961, 1962, and 1963 where she had no knowledge of the omissions.

(2) Whether the statute of limitations bars assessment of income taxes against petitioner for the years 1958 through 1960.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioner at the time of the filing of the petition in this case was a resident of Valentine, Nebr.

At all times material hereto petitioner was married to Richard L. Davenport (hereinafter referred to as Richard). Petitioner and Richard timely filed joint Federal income tax returns signed by each of them for the calendar years 1958, 1959, 1960, 1961, 1962, and 1963, with the district director of internal revenue, Omaha, Nebr.

Richard was employed by the Nebraska State Bank, Valentine, Nebr. (hereinafter called the bank) from 1946 to 1964 and served as president of that bank from 1948 until 1964. During the period he was president, he embezzled more than $2 million from the bank. Petitioner's association with the bank was limited to that of a shareholder. The funds with which she purchased the stock of the bank were inherited from her father about 1948, and she purchased the stock in that year. She received dividends on the stock, the payment of the dividends being made to her by check. She never attended any meetings of any shareholders of the bank. She was never an officer, director, or employee of the bank. She never participated at all in the conduct or operation of the affairs of the bank.

The bank was regularly audited and examined by officers of the State of Nebraska and of the United States. Petitioner had knowledge of these examinations of the books and records of the bank. The bank was also examined by auditors employed by the bank. The bank was closed on October 28, 1964.

Petitioner had no knowledge of Richard's embezzlements from the bank. Her first knowledge that there was any difficulty of any kind with the bank was when the bank was closed in October 1964.

While Richard was president of the bank he made regular allowances to petitioner for the operation of the household and payment of the household expenses. This allowance was $300 per month for the years 1960 through 1963 and $200 per month prior to that time.

No mail of any kind either personal or business was ever delivered to petitioner's home. Richard had business interests in addition to this employment by the bank and petitioner's only income during the years here in issue was dividends on her bank stock.

The joint Federal income tax returns filed by petitioner and Richard disclosed taxable income or adjusted gross income for the years and in the amounts as follows:

+------------------------------------------+ ¦Taxable year ¦Taxable income or ¦ +------------------+-----------------------¦ ¦ended Dec. 31— ¦adjusted gross income ¦ +------------------+-----------------------¦ ¦1958 ¦$11,984.53 ¦ +------------------+-----------------------¦ ¦1959 ¦10,291.38 ¦ +------------------+-----------------------¦ ¦1960 ¦(2,544.76) ¦ +------------------+-----------------------¦ ¦1961 ¦6,831.33 ¦ +------------------+-----------------------¦ ¦1962 ¦8,647.25 ¦ +------------------+-----------------------¦ ¦1963 ¦(63,123.30) ¦ +------------------------------------------+

During the years in issue, Richard received taxable income from his embezzlements in the following amounts:

+-----------------------------------+ ¦Taxable year ¦Amount of ¦ +------------------+----------------¦ ¦ended Dec. 31— ¦taxable income ¦ +------------------+----------------¦ ¦1958 ¦$288,402.81 ¦ +------------------+----------------¦ ¦1959 ¦288,402.81 ¦ +------------------+----------------¦ ¦1960 ¦288,402.80 ¦ +------------------+----------------¦ ¦1961 ¦288,402.80 ¦ +------------------+----------------¦ ¦1962 ¦183,425.08 ¦ +------------------+----------------¦ ¦1963 ¦183,425.08 ¦ +-----------------------------------+

These amounts were omitted from the joint returns filed by Richard and petitioner for each of the taxable years 1958 through 1963. Petitioner had no knowledge of Richard's embezzlements and at the time she signed the returns for each of the years 1958 through 1963 she had no knowledge that the returns did not reflect Richard's and her correct taxable income.

The joint returns of petitioner and Richard for the years in issue were prepared for them by an accountant. Petitioner would either sign the return in the office of the accountant who prepared it or the secretary of the accountant would bring the return to petitioner's home where she would sign it.

The Federal income tax returns for the years 1958 through 1960 filed by petitioner and Richard list the following income or loss items for the years indicated:

+------------------------------------------------------------------------+ ¦1958 ¦ +------------------------------------------------------------------------¦ ¦ ¦ ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦Salaries and wages ¦ ¦$12,870.00¦ +--------------------------------------------------+----------+----------¦ ¦Gross receipts (insurance business) ¦ ¦8,487.00 ¦ +--------------------------------------------------+----------+----------¦ ¦Directors fees ¦ ¦60.00 ¦ +-------------------------------------------------------------+----------¦ ¦Short—term capital gain prior to reduction by loss carryover ¦ ¦ +-------------------------------------------------------------+----------¦ ¦(arrived at by subtracting from gross sales price of ¦ ¦ +-------------------------------------------------------------+----------¦ ¦assets $80,358.03 a cost basis of $78,345.10 ¦2,042.93 ¦ +-------------------------------------------------------------+----------¦ ¦Long-term capital gain (described as United Funds)¦ ¦18.95 ¦ +-------------------------------------------------------------+----------¦ ¦Dividends including dividends from the Nebraska State Bank, ¦ ¦ +-------------------------------------------------------------+----------¦ ¦Valentine, Nebr ¦2,200.07 ¦ +-------------------------------------------------------------+----------¦ ¦Income from rents and royalties (arrived at by subtracting ¦ ¦ +-------------------------------------------------------------+----------¦ ¦from an amount of rents or royalties of $70.10 depreciation ¦ ¦ +-------------------------------------------------------------+----------¦ ¦of $60.69 and depletion of $4.71) ¦4.70 ¦ +-------------------------------------------------------------+----------¦ ¦Other income composed of the following items: ¦ ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦1. Partnerships (name and address) H Bar T. ¦ ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦Ranch, Valentine, Nebr ¦-$4,964.81¦ ¦ +--------------------------------------------------+----------+----------¦ ¦2. Estates or trusts (name and address) ¦ ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦Loan commissions ¦4,983.60 ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦3. Other sources (state nature): ¦ ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦Pension Trust ¦154.17 ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦Leo M. Blaere Estate-Executors fees ¦2,250.00 ¦ ¦ +--------------------------------------------------+----------+----------¦ ¦ ¦ ¦2,422.96 ¦ +--------------------------------------------------+----------+----------¦ ¦ ¦ ¦ ¦ +------------------------------------------------------------------------+

1959 Salaries and wages 17,370.00 Directors fees (Nebraska State Bank, Valentine, Nebr.) 100.00 Gross receipts (Insurance business) 9,741.00 Long-term capital gain (“United Funds”) 66.97 Dividends including dividends from Nebraska State Bank 1,857.39 Interest income 256.54 Loss from rents and royalties as follows: Rent and royalty income $50.75 Depreciation 60.69 -9.94 Other income composed of the following items: 1. Partnerships (name and address) H Bar T Ranch, Valentine, Nebr -16,681.32 2. Loan commissions 7,076.51 3. Other sources (state nature): Hornby Estate—Trustee fees 400.00 Bank Pension Plan 205.19 Angus Cattle Co 100.00 -8,899.62

1960 Salaries and wages 17,520.00 Directors fees (Nebraska State Bank, Valentine, Nebr.) 100.00 Gross receipts (insurance business) 10,861.50 Short-term capital loss (arrived at by subtracting from a gross sales price of $1,162.09, a cost or other basis of $1,264.11) -102.02 Long-term capital loss (arrived at by subtracting from a total gross sales price of $18,504.25, a cost or other basis of $20,503.36) -1,999.11 Long-term capital gain (described as “United Funds”) 35.73 Dividends listed as follows: Nebraska State Bank (H) 1,656.00 Nebraska State Bank (W) 174.00 United Funds 50.34 1,880.34 Interest income 115.73 Loss from rents and royalties as follows: Rent or royalty income 34.79 Depreciation 60.69 -25.90 Other income composed of the following items: 1. Partnerships (name, address, and nature of income) H-T Ranch Co., Valentine, Nebr -34,895.69 2. Estates or trusts (name and address) Sam Hudson Estate, Valentine, Nebr. (Executor) 2,844.38 3. Other sources (state nature): Loan commissions 491.81, Bank Pension Plan 214.72 706.53 -31,344.78

On November 3, 1964, jeopardy assessments were made against petitioner and Richard as follows:

+---+ ¦¦¦¦¦ +---+

Taxable year ending Dec. 31— Tax Addition to tax, Interest sec. 6653(b) 1958 $187,110.51 $93,555.26 $62,423.14 1959 186,312.63 93,156.32 50,978.20 1960 173,777.78 86,888.89 37,121.79 1961 185,046.51 92,523.26 28,426.18 1962 169,598.17 84,799.09 15,877.18 1963 119,734.17 59,867.09 4,025.04

On December 30, 1964, respondent mailed a single joint statutory notice of deficiency to Richard and petitioner from which separate petitions were filed in this Court seeking redeterminations of the deficiencies and additions to the tax determined in the notice of deficiency.

On June 7, 1966, this Court entered a decision in the case of Richard L. Davenport, pursuant to agreement of the parties, whereby it was ordered and decided that the deficiencies in income taxes due from Richard, without taking into consideration the jeopardy assessment, for the taxable years 1958, 1959, and 1960 were $234,670.31, $233,574.90, and $222,083.60, respectively, and that there were no additions to tax due under section 6653(b) for these years. It was also ordered and decided that there were deficiencies in income taxes due from Richard for the taxable years 1961, 1962, and 1963 in the amounts of $232,563.24, $123,797.45, and $76,424.28, respectively, and additions to tax under section 6653(b) in the amounts of $115,656.86, $61,898.73, and $38,212.14, respectively, without taking into consideration the jeopardy assessments.

The Federal income tax returns filed for the taxable years 1961, 1962, and 1963 were false and fraudulent and filed with intent on the part of Richard to evade and defeat tax.

Because of the disposition of other issues by agreement, the parties agree that the two issues remaining for decision are the statute of limitations issue and ‘whether petitioner, who made joint returns for the taxable years 1958 to 1963, inclusive, with her husband without knowledge of her husband's failure to include embezzlement income on such returns, is jointly and severally liable for the deficiencies in income taxes and additions to the tax due on said returns.’

OPINION

The parties in this case stipulated that petitioner and Richard filed joint Federal income tax returns, signed by each of them, for the taxable years 1958 through 1963. When a joint Federal income tax return is filed by a husband and wife, each is jointly and severally liable for the tax under section 6013(d) (3).

The tax for which the husband and wife is each liable includes deficiencies in such tax and additions to the tax under section 6653(b),

since under section 6659(a)(2)

references to ‘tax’ are deemed to refer to ‘additions to the tax.’ Myrna S. Howell, 10 T.C. 859 (1948), affd. 175 F.2d 240 (C.A. 6, 1949); W. L. Kann, 18 T.C. 1032 (1952), affd. 210 F.2d 247 (C.A. 3, 1953), certiorari denied 347 U.S. 967 (1954); and Dora S. Hughes, 26 T.C. 23, (1956).

Petitioner contends that since she did not know of the embezzled funds omitted from the returns, the returns should not be treated as joint returns even though in form they were such.

In effect petitioner's contention is that there was no voluntary election on her part to file a joint return under the facts here present since she signed the returns without knowledge of the embezzlements by her husband or of any omissions of income from the returns. The facts in the instant case are indistinguishable from those in Louise M. Scudder, 48 T.C. 36 (1967), in which we held that a return voluntarily signed by a wife without disclosure to her by her husband of income received by him being omitted from the tax return was such a joint return as to cause the wife to be jointly and severally liable for deficiencies in tax for the year for which the joint return was filed. Here, as in Louise M. Scudder, supra, the evidence does not show that the wife's signature to the return was obtained by duress or that it was forged or was obtained by trickery, nor does the evidence show any deliberate deception by the husband to induce his wife to sign a joint return with him. For the reasons stated in Louise M. Scudder, supra, we hold that the returns filed by petitioner and Richard for the years here in issue were legally effective joint returns.

Petitioner further contends that the words, ‘aggregate income’ as used in section 6013(d)(3) imply the combination of two separate units which form the whole and that if one party to the return has no unit of income attributable to him, there can be no aggregate. The facts here show that petitioner in each year here in issue had some individual income which was included in the joint returns. Therefore, on petitioner's interpretation of ‘aggregate,‘ there was an ‘aggregate income’ for the years here in issue. However, if petitioner had no separate income, the legislative history of predecessor provisions to section 6013(d)(3) indicates that the term ‘aggregate income’ as used in that section was not predicated on each party's having some income. The first statutory enactment of the joint and several liability provisions was contained in section 51(b) of the Revenue Act of 1938 which stated:

In the case of a husband and wife living together the income of each (even though one has no gross income) may be included in a single return made by them jointly, in which case the tax shall be computed on the aggregate income, and the liability with respect to the tax shall be joint and several. * * *

See Eva M. Manton, 11 T.C. 831 (1948).

Petitioner alleged that the statute of limitations barred assessment of tax for all the years here in issue but now recognizes that because of the fact that the returns for the years 1961, 1962, and 1963 were fraudulent the statute of limitations does not bar the assessment of the deficiency for those years. For the years 1958, 1959, and 1960 petitioner contends that since respondent has failed to prove that false and fraudulent returns were filed, assessment of any deficiency is barred by the statute of limitations.

Respondent contends that the 6-year statute of limitations provided for in section 6501(e)(1)(A) applies. To sustain this contention, the respondent has the burden of proving that the petitioner omitted from gross income an amount properly includable therein in excess of 25 percent of the gross income reported on the returns. C. A. Reis, 1 T.C. 9 (1942), affd. 142 F.2d 900 (C.A. 9, 1944).

To satisfy his burden in proving the omission, respondent must show the amount of gross income stated in the return and the amount of income properly includable therein which has been omitted. Elizabeth Bardwell, 38 T.C. 84 (1962), affd. 318 F.2d 786 (C.A. 10, 1963), and Lois Seltzer, 21 T.C. 398 (1953). In the instant case respondent has not shown the amount of gross income stated in the return. On each of the returns for the years 1958 through 1960 there is reported on Schedule H a net loss figure for certain partnership income. Respondent has not shown whether a partnership return was filed for those years and if so the gross income reported thereon. Under section 6501(e) (1)(A) the term ‘gross income from a trade or business' means the amount received or accrued from the sales of goods or services undiminished by the cost of such goods or services. Since there is no evidence indicating the manner in which petitioner arrived at the loss figure for income from the partnership, there is nothing in the record to show petitioner's gross income from the partnership. Respondent's Rev. Rul. 55-415, 1955-1 C.B. 412, following his ruling in I.T. 3981, 1949-2 C.B. 78, as to a partner's gross income for the purpose of section 251 of the Internal Revenue Code of 1939, provides, and this Court has recognized, that a partnership return is to be considered together with an individual return in determining the total gross income stated in the individual return for the purpose of determining whether the 6-year statute of limitations is applicable. Jack Rose, 24 T.C. 755, 768-769 (1955). See also Elliott J. Roschuni, 44 T.C. 80 (1965), and Genevieve B. Walker, 46 T.C. 630, 637-638 (1966).

We therefore conclude that respondent has failed to establish that petitioner and Richard omitted from any one of their joint Federal income tax returns for the years 1958, 1959, and 1960 an amount of gross income properly includable therein in excess of 25 percent of the amount of gross income stated in such return and therefore respondent has failed to show that the 6-year statute is applicable.

The only exception to the statute of limitations for each of the years 1958, 1959, and 1960 alleged by respondent other than fraud which he now concedes not to apply is the omission by petitioner and Richard from gross income for each of these years of an amount properly includable therein in excess of 25 percent of the gross income shown on the return.

From the facts it appears that Richard agreed to the deficiencies for the years 1958, 1959, and 1960 in the stipulation filed in his case in this Court. Respondent makes no contention that this agreement by Richard is binding on petitioner and does not allege that petitioner is in any way estopped from claiming in her case that the statute of limitations is a bar to the determination of any deficiencies against her for the years 1958, 1959, and 1960. Since estoppel is an affirmative defense that must be both pled and proved, there is no issue of estoppel before us in this case. In Marie A. Dolan, 44 T.C. 420 (1965), we held that a husband and wife who file a joint return are separate taxpayers and assessment of tax against one does not reduce the deficiency to be determined against the other. Under this holding (as respondent apparently recognizes since he does not argue to the contrary), the fact that deficiencies for the years 1958, 1959, and 1960 have been determined against Richard is no basis for determining those deficiencies against petitioner in a separate case which she has a right to bring before us as a separate action from that of her husband even though the deficiency notice sent to them was joint. Eva M. Manton, supra. Cf. Jack Douglas, 27 T.C. 306, 315 (1956), affirmed sum nom Sullivan v. Commissioner, 256 F. 2d 4 (C.A. 5, 1958).

We, therefore, sustain respondent's determination as modified by the stipulation of the parties filed in this case for the years 1961, 1962, and 1963 but hold that the assessment or collection of any deficiency against petitioner is barred by the statute of limitations for the years 1958, 1959, and 1960. Because of the stipulated adjustments as to the years for which we have sustained respondent,

Decision will be entered under Rule 50.