Opinion
Docket No. 38765.
1956-04-9
DORA S. HUGHES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
W. L. Clifton, Esq., for the petitioner. Raymond Whiteaker, Esq., for the respondent.
W. L. Clifton, Esq., for the petitioner. Raymond Whiteaker, Esq., for the respondent.
INDIVIDUAL INCOME TAX RETURNS— JOINT OR SEPARATE— Return forms captioned in the names of both spouses and signed by both, in which it was stated that no separate returns were being filed, and in which the tax was computed on aggregate income, held to be joint returns on which the wife is jointly and severally liable for the deficiencies and additions for fraud, even though the fraudulent acts were solely those of the husband. Schedules attached to the returns which listed separately the income and deductions of the spouses do not, in the light of other evidence, establish intent to file separate returns.
The respondent in a notice of deficiency addressed to Mr. John A. Hughes and Mrs. Dora S. Hughes, husband and wife, determined deficiencies in income tax and additions to the tax for the years and in the amounts as follows:
+---------------------------------------+ ¦Year¦Amount of ¦50 per cent addition¦ +----+-------------+--------------------¦ ¦ ¦deficiency ¦(sec. 293(b)) ¦ +----+-------------+--------------------¦ ¦1941¦$895.56 ¦$447.78 ¦ +----+-------------+--------------------¦ ¦1942¦3,238.15 ¦1,619.08 ¦ +----+-------------+--------------------¦ ¦1943¦1 10,118.05¦5,059.03 ¦ +----+-------------+--------------------¦ ¦1946¦46,587.74 ¦23,293.87 ¦ +----+-------------+--------------------¦ ¦1947¦35,010.67 ¦17,505.34 ¦ +---------------------------------------+
The petition filed with this Court is captioned in the name of Dora S. Hughes, alone, and it is verified by her alone. The petitioner challenges the respondent's determination that she is liable for the tax deficiencies and additions to tax. The basis for the challenge is that although the returns filed purported to be joint returns of husband and wife, each one was in reality two separate returns, one for the petitioner and one for her husband. The petitioner alleges that because her income was separately reported, she is not liable for any omissions on the part of her husband in the reporting of his income, or any consequences thereof.
By answer, the respondent alleges that the returns were false and fraudulent with intent to evade tax, that a part of the deficiency for each year is due to fraud with intent to evade taxes, and that the petitioner and her husband are jointly and severally liable for the additions to the tax. By reply, the petitioner denies liability, contending that the returns were not joint returns and that there was no fraud in her returns.
FINDINGS OF FACT.
Some of the facts were stipulated and are found as stipulated.
The petitioner is an individual who resides in Sumter, South Carolina. She and John A. Hughes were married when she was 22 years of age, and at the time of the hearing of this proceeding they had been married for 33 years.
John A. Hughes was a salesman. He was given to drinking, some of it excessive. While away from home on his job he wrote checks against his bank account and returned home without funds, and without recollection of having written checks. The petitioner, although employed, could not properly support herself and children. Because of the inability of John to care for his money, he began the practice of depositing funds in banks in the name of the petitioner, and continued to do so in the following years. It was always understood that funds so deposited were in fact the property of John and that the petitioner was not to write checks against such deposits unless he directed her to do so. John not only checked money out of the bank, but also cashed checks received in payment of lumber sold by him, and would spend the money while drinking.
In the fall of 1939, while John was employed as a traveling salesman for a lumber company, he started, on his own account, selling and filling small orders for lumber which were not acceptable to his employer. In this way he established his own business of selling lumber. It was entirely his business, and the petitioner was never a partner in it. John prepared in pencil his invoices covering his sales of lumber. At night the petitioner copied the invoices on the typewriter. She noted on the invoices the cost of the lumber and the amount of the profits. She also checked the monthly bank statements. She performed these tasks as the wife of John, and not as his employee. In performing these tasks, she learned enough about John's business, and she knew enough about his personality, to cause her to be concerned as to whether he was making accurate income tax returns. She questioned him about his returns, and he always assured her that he was making accurate returns, but his manner was such that she could not believe him.
During the years 1941 and 1942, and for a part of 1943, the petitioner was employed and received a salary for such employment. In each of those years she also received unemployment compensation from the State of South Carolina. The petitioner and John had three children, all of whom were minors during the entire year 1941, two were minors during the entire year 1942, one was a minor during the entire year 1943, and one a minor during part of that year. The couple had no dependents in 1946 and 1947.
For each of the years 1941, 1942, 1943, 1946, and 1947 there was filed with the collector (now district director) of internal revenue for the district of South Carolina a Treasury Department Form 1040, in each of which was typed the names ‘JOHN A. AND DORA S. HUGHES' in the space provided for the name of the taxpayer. The names were typed in immediately above the printed instruction on the forms for 1941, 1942, and 1943 to ‘Use given names of both husband and wife, if this is a joint return,‘ and the instructions on the forms for 1946 and 1947 that ‘If this return is for a husband and wife, use both first names.’ Each return bore the ink-written signatures of John A. Hughes and Dora S. Hughes. The signatures were written immediately above the printed instructions which, with slight variation in phraseology, directed on each form that if it was a joint return it must be signed by both husband and wife. The answer ‘No’ was given to the question on the return for 1946 which read: ‘Is your wife (or husband) making a separate return for 1946?’ The answer ‘No’ was given to the question on the return for 1947 which read: ‘Is your wife (or husband) making a separate return for 1947?’ On page 2 of the 1941 and 1942 returns and on page 3 of the 1943 return the taxpayers left blank the spaces in the provisions which read:
+--------------------------------------------------------+ ¦If separate return was made for the current year, state:¦ +--------------------------------------------------------¦ ¦(a)¦Name of husband of wife_________________ ¦ +---+----------------------------------------------------¦ ¦(b)¦Personal exemption, in any, claimed thereon_ ¦ +---+----------------------------------------------------¦ ¦(c)¦Collector's office to which was sent_ ¦ +--------------------------------------------------------+
On the face of each of the Forms 1040, figures were typed in which, based on schedules attached to the forms, purported to be the aggregate of the gross income, deductions, and net income of the petitioner and her husband. The tax shown on each return was computed on such aggregate net income.
Attached to each of the Forms 1040 were schedules which set out separately, and in detail, the purported income of the petitioner and her husband, and the sources thereof. Such schedules also show the amount and character of all deductions taken on the returns, such as expenses, charitable contributions, medical expenses, taxes, interest, losses, and depreciation. Except for a relatively few of such deductions in comparatively small amounts, the schedules show separately the deductions attributable to the petitioner and to her husband. The schedules in each instance bore a caption stated that it was in support of ‘Income Tax Returns' for the particular year. A footnote typed on the face of the Form 1040 for 1947 recites: ‘EXTENSION OF TIME FOR FILING RETURNS.’
Except for minor adjustments, explained in the revenue agent's report which is in evidence, the separate gross income and deductions of the petitioner were correctly shown in the Forms 1040 that were filed. Such adjustments, which represent unallowable deductions, and are reflected in the computations in the notice of deficiency, consisted of expense and depreciation on an automobile used by the petitioner in 1941, 1942, and 1943 in commuting to and from work.
During the years 1941, 1942, 1943, 1946, and 1947, John A. Hughes was engaged in the business of buying and selling lumber, and realized therefrom profits in each of those years which were not disclosed in the income tax returns that were filed. During the year 1947, he received taxable income in the amount of $15,946.95 from a partnership known as Kelly and Hughes, which income he did not disclose on the income tax return filed for that year.
The net income shown in the returns and the amount of net income determined by the respondent were as follows:
+----------------------------------------------------------+ ¦Year ¦Shown on return ¦Determined by ¦ +------------------------+-----------------+---------------¦ ¦ ¦ ¦respondent ¦ +------------------------+-----------------+---------------¦ ¦1941 ¦$3,621.46 ¦$9,625.93 ¦ +------------------------+-----------------+---------------¦ ¦1942 ¦2,572.37 ¦13,923.37 ¦ +------------------------+-----------------+---------------¦ ¦1943 ¦2,762.29 ¦26,159.00 ¦ +------------------------+-----------------+---------------¦ ¦(Victory tax net income)¦3,709.43 ¦27,129.02 ¦ +------------------------+-----------------+---------------¦ ¦1946 ¦9,496.91 ¦82,129.37 ¦ +------------------------+-----------------+---------------¦ ¦1947 ¦8,815.44 ¦66,689.71 ¦ +----------------------------------------------------------+
John A. Hughes, with willful intent to evade tax, fraudulently failed to disclose his correct taxable income from his lumber business for the taxable years, and from the partnership of Kelly and Hughes for the year 1947 on the income tax returns that were filed. A part of the deficiency in income tax for each of the years 1941, 1942, 1943, 1946, and 1947 is due to fraud on the part of John A. Hughes with intent to evade taxes.
On February 21, 1950, John A. Hughes was indicted at Columbia, South Carolina, under section 145(b) of the Internal Revenue Code of 1939, for willful evasion of income taxes for the years 1943, 1944, 1945, 1946, and 1947. On October 23, 1950, he entered a plea of guilty to the indictment in the United States District Court for the Eastern District of South Carolina, and was sentenced to serve 1 year and 1 day in the custody of the Attorney General of the United States, and to pay a fine of $10,000.
On November 6, 1951, the respondent, by registered mail, sent a notice of deficiency in income taxes for the years 1941, 1942, 1943, 1946, and 1947 addressed to ‘Mr. John A. Hughes and Mrs. Dora S. Hughes, Husband and Wife * * * .’ The petition in this proceeding, which is based on that notice of deficiency, is captioned in the name of Dora S. Hughes and is verified by her. John A. Hughes did not file a petition with this Court for redetermination of the deficiencies determined in the notice of November 6, 1951.
The return for each of the years in controversy was a joint return of the petitioner and her husband, John A. Hughes. Each of such returns was fraudulent with intent to evade tax. A part of the deficiency for each year is due to fraud with intent to evade tax.
OPINION.
ATKINS, Judge:
The petitioner's contention is that the returns filed for the years in question, 1941, 1942, 1943, 1946, and 1947, were not, in fact and law, joint returns and that consequently there is no joint or several liability on her part, under section 51(b) of the Internal Revenue Code of 1939,
for any deficiency or addition to the tax resulting from the fraud on the part of her husband. It is her position that each one of the returns in effect constitutes two separate returns, one for her husband and one for herself for each of the years, inasmuch as the schedules attached to each return set forth information showing separately the items and sources of income and deductions of herself and her husband. She claims, and it has been stipulated, that except for minor adjustments made by the respondent, the separate gross income and deductions pertaining to her were correctly shown in the Forms 1040 that were filed. If she is correct in her contention that in effect she filed separate returns it would also follow that the statute of limitations would bar assessment and collection of any deficiency which might be due from her as a result of the adjustments made by the respondent in the notice of deficiency, since there was no fraud on her part in reporting her income and deductions. Secs. 275(a) and 276(a) of the 1939 Code.
Including Victory tax.
Section 51(b) as in effect for the years 1941, 1942, and 1943 provided as follows:SEC. 51. INDIVIDUAL RETURNS.(b) HUSBAND AND WIFE.— 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. No joint return may be made if either the husband or wife is a nonresident alien.Section 51(b) as in effect for the years 1946 and 1947 provided as follows:(b) HUSBAND AND WIFE.— A husband and wife may make a single return jointly. Such a return may be made even though one of the spouses has neither gross income nor deductions. If a joint return is made the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several. No joint return may be made if either the husband or wife is a nonresident alien or if the husband and wife have different taxable years. The status of individuals as husband and wife shall be determined as of the last day of the taxable year. 2. SEC. 275. PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION.Except as provided in section 276—(a) GENERAL RULE.— The amount of income taxes imposed by this chapter shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period.SEC. 276. SAME— EXCEPTIONS.(a) FALSE RETURN OR NO RETURN.— In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
Section 51(b) of the Code makes it clear that if a joint return is filed the spouses are jointly and severally liable for the full tax liability. It is well established that the joint and several liability extends to any addition to the tax on account of fraud, even though the fraud may be attributable only to one spouse. Myrna S. Howell, 10 T.C. 859, affd. (C.A. 6) 175 F.2d 240; W. L. Kann, 18 T.C. 1032, affd. (C.A. 3) 210 F.2d 247; Arthur N. Dellit, 24 T.C. 434; Boyett v. Commissioner, (C.A. 5) 204 F.2d 205, affirming a decision of this Court.
We turn then to the primary question presented as to whether the returns in question were joint returns of the petitioner and her husband. The respondent's determination in this respect is prima facie correct, and the burden of proof is upon the petitioner to show error on his part. Myrna S. Howell, supra; Virginia M. Wilkins, 19 T.C. 752; Hyman B. Stone, 22 T.C. 893.
For each year the return on its face purports to be a joint return in that in the space provided for the name of the taxpayer, the names of both the petitioner and her husband are typed. Each return was signed by both the petitioner and her husband. Each return indicated, in the proper place, that a separate return was not being filed for each spouse. In each return the tax liability was computed upon the aggregate income and deductions of both the petitioner and her husband. The petitioner does not contend that her signature was obtained by coercion, by fraud, or by mistake. Her action in joining with her husband and signing the returns was voluntary. See Estate of Merlin H. Aylesworth, 24 T.C. 134. Her claim that the returns in question constituted separate returns is based upon the fact that schedules attached to each return show separately the income and the deductions attributable to her and to her husband, the fact that each schedule bears a caption stating that it is in support of ‘Income Tax Returns' and the fact that a footnote typed on the face of the Form 1040 filed for 1947 recites ‘EXTENSION OF TIME FOR FILING RETURNS.’ It is contended that the fact that the plural is used is evidence of the petitioner's intent that each return should be treated as two separate returns.
The petitioner herself did not appear to testify at the hearing because of illness. However her affidavit was taken and was received in evidence. In her affidavit she stated ‘I did not add or commingle any of my earnings and deductions for income tax purposes with my husband. I did not make joint returns with him. I made entirely separate report in my income tax returns for the years in question of my individual earnings, my individual deductions and of my individual net income.’ The affidavit was received in evidence with the understanding of both counsel that the petitioner's conclusion that she did not make joint returns with her husband was merely evidentiary and that the question whether the returns were joint returns would be determined in the light of not only the affidavit, but also of all other evidence in the record. Her statement in this respect is a legal conclusion and is not determinative. Such statement is not tantamount to a statement that it was her intention, at the time of preparing and filing the returns, not to file joint returns. We are of the opinion that if she had intended to file separate returns she would have prepared and filed separate Forms 1040. Here the income and deductions of each spouse were included in one Form 1040 for each year, the tax was computed on a combined basis, and each spouse signed. There was no statement on the returns, or any other notice given to respondent, that the returns were other than what they purported to be, namely, joint returns. No authority has come to our attention which would justify a holding that these were not joint returns. In many cases it has been held that even though a wife did not sign returns, they nevertheless constituted joint returns in the absence of proof that she did not consent to their being filed in the joint names of husband and wife. Joseph Carroro, 29 B.T.A 646; Myrna S. Howell, supra; W. L. Kann, supra; Hyman B. Stone, supra. Where, as here, the returns bear the admitted signature of the petitioner the burden of overcoming the presumptive correctness of the respondent's determination is substantially increased. Virginia M. Wilkins, supra.
The respondent has, in his rulings, recognized that under some circumstances a single return form filed by husband and wife may constitute separate returns, dependent upon intent.
However, the facts in the instant case do not establish an intent of the parties to file separate returns. The cases of Paul Gordon Whitmore, 25 T.C. 293, and Strich v. Westover, (S.D., Cal.) 87 F.Supp. 40, are distinguishable from the instant case on the facts. In those cases it appeared that the computations on the face of the returns showed that the intention was to file separate returns on a community property basis, rather than joint returns.
O.D. 960, 4 C.B. 255 states:Where husband and wife clearly indicate on a single return form the net income of each, such a return does not necessarily constitute a joint return. It is a matter of intent. Having separated their respective incomes, in the absence of a showing to the contrary the presumption is that they intended to file separate returns of income, but that for convenience they have used one form. In such case both the normal and surtax should be computed on the separate income of each. This presumption is, however, overcome if the tax has been computed by the taxpayer on the combined net income; in which case, even though their incomes have been separated and can be identified, the return is held to be a joint return, and both the normal and surtax should be assessed on the basis of combined net income.
Upon a consideration of the whole record we have found as an ultimate fact, and hold, that the return for each of the years in question was a joint return.
Since the deficiencies determined by the respondent are presumed prima facie to be correct, and the petitioner has not adduced any proof whatsoever to show error in the respondent's determination, we approve the determined deficiencies. The burden of proof as to the fraud issue is upon the respondent. However, the stipulated facts show that a part of each deficiency is due to fraud with intent to evade tax and that each return was false or fraudulent with intent to evade tax, and we have so found. We accordingly hold that the additions to tax under section 293(b) of the Code were proper, that the statute of limitations does not bar assessment and collection of the deficiencies and additional amounts, and that the petitioner is liable jointly and severally for the deficiencies and additions to the tax determined by the respondent.
Decision will be entered for the respondent.