2002 Tax Ct. Memo LEXIS 17">*17 No portion of IRA distributions to petitioner's husband included in petitioner's gross income and petitioner not subject to
MEMORANDUM OPINION
POWELL, Special Trial Judge: Respondent determined deficiencies in petitioner's 1996 and 1997 Federal income taxes of $ 1,544 and $ 1,600, respectively. This case involves some of the peculiarities that emanate from the union of community property concepts and the Internal Revenue Code. The issues are (1) whether distributions to petitioner's husband from an individual retirement account (IRA) held by petitioner's husband are included in petitioner's share of community income and (2) whether petitioner is entitled, under
2002 Tax Ct. Memo LEXIS 17">*18 The facts may be summarized as follows. During 1996 and 1997, petitioner was married to and lived with Larry Morris (Mr. Morris) in Louisiana, a community property State. They did not have a matrimonial agreement separating their property during the years at issue. Petitioner and Mr. Morris are currently separated and living apart.
During the years at issue petitioner and Mr. Morris maintained one checking account over which both had signature authority. Mr. Morris kept the checkbook and all bank records in his possession and gave petitioner checks for household expenses such as the mortgage, utilities, and food. Petitioner did not have ready access to the bank records. Mr. Morris used this same checking account for his business activities.
In 1996, Mr. Morris withdrew $ 7,645 from an IRA that was created and owned by him and withdrew an additional $ 25,660 from the IRA in 1997. Petitioner knew that Mr. Morris made a withdrawal in 1997 because he purchased a new automobile for his use. She was unaware of the 1996 withdrawal and the precise amount of the 1997 withdrawal.
Petitioner was not involved in any way with the operations or the recordkeeping for Mr. Morris's business activities.2002 Tax Ct. Memo LEXIS 17">*19 She knew, however, that he did not maintain proper records and dealt in cash. Petitioner suspected that Mr. Morris did not report all of his income on his Federal income tax returns. When petitioner confronted Mr. Morris regarding his income, records, and the proper filing of his Federal income tax returns he became verbally and physically abusive.
Petitioner filed separate Federal income tax returns for 1996 and 1997 because of her suspicions regarding Mr. Morris's honesty in reporting his correct Federal income tax liability. She believed that filing separately would relieve her of any liability from his defalcations.
Respondent determined that during 1996 and 1997, without regard to the effect of a community property regime, petitioner and Mr. Morris received income and were entitled to deductions as follows:
1996 1997
______________________ ______________________
Income Petitioner Mr. Morris Petitioner Mr. Morris
______ __________ __________ __________ __________
Wages $ 2002 Tax Ct. Memo LEXIS 17">*20 21,407 $ 2,301 $ 3,265 $ -0-
State tax refund 195 -0- 463 -0-
Dividends 2 -0- -0- -0-
IRA early distributions -0- 7,645 -0- 25,660
Schedule C, Profit or Loss
from Business, net income -0- 15,305 -0- (5,373)
Deductions
__________
Medical 2,769 -0- 1,291 3,561
Mortgage interest 6,989 -0- 6,962 -0-
Charitable contributions 6,070 4,489 150 4,152
Taxes 617 -0- 175 -0-
Miscellaneous itemized 70 -0- 75 -0-
Other
_____
Taxes withheld 2,163 125 288 -0-
Respondent applied community property principles to determine the parties' share of income, additional tax, and deductions, allocating to petitioner her community2002 Tax Ct. Memo LEXIS 17">*21 property share as follows:
Income 1996 1997
______ ____ ____
Wages $ 11,854.00 $ 1,632.50
State tax refund 97.50 231.50
Dividends 1.00 -0-
IRA early distributions 3,822.50 12,830.00
Schedule C net income 7,652.50 (2,686.50)
Deductions
__________
Medical 1,384.50 2,426.00
Mortgage interest 3,494.50 3,481.00
Charitable contributions 5,279.50 2,151.00
Taxes 308.50 87.50
Miscellaneous itemized 35.00 37.50
Other
_____
Taxes withheld 2002 Tax Ct. Memo LEXIS 17">*22 1,144.00 144.00
For 1996, respondent's adjustments resulted in a net increase of $ 2,018.50 in petitioner's income, a net decrease of $ 6,013 in petitioner's deductions, a $ 1,019 decrease in petitioner's withholding credits, and the imposition of the
Petitioner timely filed a Form 8857, Request for Innocent Spouse Relief, seeking equitable relief from liability under the provisions of
Discussion
1. IRA Distributions and Petitioner's Gross Income
Spouses domiciled in Louisiana are subject to a community property regime.
(1) In general. -- Except as otherwise provided in this
subsection, any amount paid or distributed out of an individual
retirement plan shall be included in gross income by the payee
or distributee, as the case may be, in the manner provided under
We have held that the distributee or payee of a distribution from an IRA is "the participant or beneficiary who, under the plan, is entitled to receive the distribution."
Under Bunney, no portion of Mr. Morris's IRA distributions are included in petitioner's gross income. 3 Similarly, the
2002 Tax Ct. Memo LEXIS 17">*25 2. Relief Under
We next turn to petitioner's claim that respondent abused his discretion in refusing to grant equitable relief under
Under a community property regime, each spouse is entitled to file separate Federal income tax returns. When separate Federal tax returns are filed, each spouse must report half of the community income.
(c) Spouse Relieved of Liability in Certain Other Cases. --
Under regulations prescribed by the Secretary, if --
(1) an individual does not file a joint return for any
taxable year,
(2) such individual does not2002 Tax Ct. Memo LEXIS 17">*26 include in gross income
for such taxable year an item of community income properly
includible therein which, in accordance with the rules
contained in section 879(a), would be treated as the income
of the other spouse,
(3) the individual establishes that he or she did not
know of, and had no reason to know of, such item of
community income, and
(4) taking into account all facts and circumstances,
it is inequitable to include such item of community income
in such individual's gross income,
then, for purposes of this title, such item of community income
shall be included in the gross income of the other spouse (and
not in the gross income of the individual). Under procedures
prescribed by the Secretary, if, taking into account all the
facts and circumstances, it is inequitable to hold the
individual liable for any unpaid tax or any deficiency (or any
portion of either) attributable to any item for which relief is
not available under the preceding2002 Tax Ct. Memo LEXIS 17">*27 sentence, the Secretary may
relieve such individual of such liability.
Petitioner's request for relief relies on the last sentence of
We have the authority to review respondent's denial of equitable relief under the last sentence of
Pursuant to the directions in the statute, respondent issued
To reflect the foregoing,
Decision will be entered under Rule 155.
1. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue, and Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. The facts are not in dispute and the issue is primarily one of law. Sec. 7491, concerning burden of proof, has no bearing on this issue.↩
3. We note that in