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2010-112
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
(continued...)
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6662(a).
FINDINGS OF FACT
Personal Background
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(...continued)
are rounded to the nearest dollar.
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(Mr. Jones) in 2001 and they had a daughter. Mr. Jones was
employed as a pilot with Net Jets from 1999 until November 2006,
and tax aspects of Hadley & Pech and Archipelago. However, Mr.
Hadley & Pech and Archipelago and took them from Nevada to
Oregon, assuming full control over the financial and tax aspects
of the entities.
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Responsibility for filing the couple’s 2005 return, which was due
that Hadley & Pech and Archipelago were in operation and that Mr.
Petitioner did not report any income from Hadley & Pech or
For 2005 Hadley & Pech and Archipelago had $101,927 and
cash distribution of $10,000 from Hadley & Pech, which was used
tax deficiency and penalty and raised a claim under section 6015
liabilities for 2005 but stated that for 2007 petitioner and Mr.
Jones would select the tax method generating the least tax
liability for both and share the payment of tax equally for 2007.
OPINION
to Mr. Jones and Mr. Sutton were not made in the same percentages
only that the receipts were embezzled but the exact amount of the
distribution made by Hadley & Pech to Mr. Sutton during 2005 was
of embezzlement.
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amounts different from those that Hadley & Pech reported on her
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If a shareholder of an S corporation fails duly to notify
the IRS of an inconsistency between her own return and that of
the corporation in a situation described in sec.
6037(c)(2)(A)(i)(I) where, at the time the shareholder files her
return, the corporation has already filed a return, the IRS may
use the procedures for mathematical or clerical errors to adjust
the shareholder’s pass-through items to be consistent with their
treatment on the corporation’s return. Sec. 6037(c)(3). In this
case, Hadley & Pech had not filed its return at the time
petitioner filed her joint return. While the statute still
contemplates that petitioner must notify the Secretary that her
return is inconsistent with Hadley & Pech’s, the effect of a
failure to notify described in sec. 6037(c)(3) does not apply in
this situation, nor does it affect our jurisdiction.
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297, affd. 485 F.3d 171 (1st Cir. 2007); sec. 1.702-1, Income Tax
Regs.
Because Mr. Sutton and Mr. Jones did not have a partnership
she and Mr. Jones should not be required to pay the tax with
withdrawn from Archipelago during 2006, this would not affect the
income tax return, they are jointly and severally liable for the
114 T.C. 276, 282 (2000). However, a spouse may qualify for
3
A taxpayer is entitled to deduct losses arising from the
theft of property under sec. 165(a). Any loss arising from theft
shall be treated as sustained during the taxable year in which
the taxpayer discovers the loss. Sec. 165(e). Petitioner
testified that she discovered during 2007 that Mr. Sutton had
taken the profits. Thus, even if petitioner established
embezzlement of funds, that loss would not be claimed for 2005.
See Marine v. Commissioner, 92 T.C. 958 (1989), affd. without
published opinion 921 F.2d 280 (9th Cir. 1991).
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she qualifies for full relief from joint liability under section
Jonson v. Commissioner, 118 T.C. 106, 113 (2002), affd. 353 F.3d
relief. Alt v. Commissioner, 119 T.C. 306, 313 (2002), affd. 101
section 6015(b)(1).
1. Section 6015(b)(1)(B)
other person filing the joint return. The parties agree that the
plaintiff along with Mr. Jones in the Nevada suit against Mr.
Hadley & Pech and a 50-percent owner of Archipelago and that Mr.
2. Section 6015(b)(1)(C)
joint tax return she did not know, and had no reason to know, of
affd. 282 F.3d 326 (5th Cir. 2002). The record is clear that
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petitioner was aware that Hadley & Pech and Archipelago existed,
that they were operating during 2005, and that Mr. Jones was an
from Hadley & Pech during 2005 to pay the taxes owed for 2004.
$10,000 cash distribution from Hadley & Pech before she signed
to Mr. Jones of $35,867 and $106,149 from Hadley & Pech and
that her spouse had unreported income does not know the exact
regarding her extensive efforts, both before and after filing the
return, to obtain the Schedules K-1 for Hadley & Pech and
3. Section 6015(b)(1)(D)
2007-219.4
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Rev. Proc. 2003-61, sec. 4.01, 2003-2 C.B. 296, 297, lists
seven threshold conditions which must be satisfied before we
consider a request for relief under sec. 6015(f), and Rev. Proc.
2003-61, sec. 4.03, 2003-2 C.B. at 298, lists several factors
that we consider in determining whether to grant equitable relief
under sec. 6015(f). Respondent concedes that petitioner meets
six of the seven threshold conditions. However, in our holding
above we concluded that the tax liability at issue is
attributable solely to Mr. Jones. Thus we find petitioner meets
the seven threshold conditions.
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of her tax returns for years after 2005. On the other hand,
outweigh those that count against it. On the basis of the above,
4. Section 6015(b)(2)
which such individual did not know and had no reason to know.”
deficiency in tax and the penalty for 2005 arising from the
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omission of income from Hadley & Pech and Archipelago, except for
the $10,000 cash distribution from Hadley & Pech of which she had
actual knowledge.
to, or is legally separated from, the spouse with whom she filed
the joint return, the requesting spouse may elect to limit her
section 6015(b).
to hold the taxpayer liable for any unpaid tax or deficiency and
she does not qualify for relief under section 6015(b) or (c). We
the $10,000 cash received from Hadley & Pech for which we have
petitioner.
comply with the income tax laws and did not disregard rules and
which the taxpayer acted with reasonable cause and in good faith.
the 2005 Schedules K-1 from Mr. Sutton informing them of Mr.
August 2007, well after the October 15, 2006, date of filing.
she had informed the preparer of the 2005 return that the
operational, that Mr. Jones was an owner of each, and that he had
Decision will be