In Uncategorized on 04/25/2012 at 17:17

Even though IRS agreed that Catherine Marie Nunez was an innocent spouse, Judge Haines didn’t, and thereby hangs the tale of Catherine Marie Nunez, f.k.a. Catherine Marie Uriarte, Petitioner, and Robert F. Uriarte, Intervenor, 2012 T.C. Mem. 121, filed 4/25/12.

Catherine Marie and spouse Fighting Bob ran a copying service. Fighting Bob did the client contact, sales and service. Catherine Marie “took care of the administrative side of the business. She entered data into Quickbooks, organized and filed receipts and invoices, answered phones, wrote up service calls, and paid bills.” 2012 T.C. Mem. 121, at pp. 2-3. Catherine Marie was a signatory on the business bank account, wrote and signed checks (including to herself and her daughter from a previous relationship), and was listed as co-owner on permits, certificates and State returns.

Though they filed income tax returns for the years at issue, they never did get around to paying the taxes. Ultimately they both filed bankruptcy, but they never completed their payment plan and their proceeding got tossed. Sounds like another busted Chapter 13, one of the many that litter the bankruptcy trail.

But the fallout of the bankruptcy was the fallout of the marriage, and Catherine Marie and Fighting Bob divorced. Bob filed bankruptcy again, but Catherine Marie didn’t. When IRS got around to pursuing the pair, Catherine Marie claimed she was innocent, and the only reason her name was all over the copying business was their State’s community property laws.

IRS first said no, but Catherine Marie appealed and won. However,  Fighting Bob never got the Appeals decision. So Fighting Bob gets to argue that Catherine Marie should remain aboard. Appeals agreed in part, applied the community property rationale, and gave Catherine a 50% bye. Catherine petitions, arguing inequitable to hold her in as she believed Fighting Bob would pay, and IRS concedes she should get 100% relief.

Fighting Bob says “no way, Harry A.”, meaning Judge Harry A. Haines, who sides with Fighting Bob and socks it to Catherine Marie 100%.

IRS has discretion in inequitables like this, and argues abuse of discretion is the test for review. No, says Judge Haines, it’s de novo because Fighting Bob never got his turn at bat, and Catherine Marie flunks under Rev. Proc. 2003-61, the old rule (see my blogpost “Innocence is Bliss”, 1/6/12). In any case, it probably it wouldn’t matter even with the new rule announced in Notice 2012-8, as abuse wasn’t raised seriously.

Catherine Marie claims she’s in this mess solely because of community property law. Otherwise, it would all be Fighting Bob’s problem. But Judge Haines dismisses that argument: “Petitioner and respondent argue that Alpha was intervenor’s business and that any item of Alpha’s income or expense attributable to her is solely due to the operation of California’s community property law. We disagree. The record is filled with evidence that petitioner coowned Alpha [the copycat business] during the years at issue and was heavily involved in its operations. Petitioner took care of the administrative side of the business. She entered data into Quickbooks, organized and filed receipts and invoices, answered phones, wrote up service calls, paid the company’s bills, and coordinated and provided the accountant with all the tax preparation information. Petitioner also drafted budgets, attempting to have her say in how the business was run.

“Additionally, State filings and business records show that petitioner was an owner of Alpha during the years at issue. Petitioner was listed as an owner of Alpha on its business license and on California payroll tax deposit coupons. Petitioner was also listed on Alpha’s fictitious business name statement, which states that the business is conducted by husband and wife. Further, the marital settlement agreement divided community property between petitioner and intervenor. As part of the division petitioner assigned to intervenor as his sole and separate property all of her rights, title, and interest in Alpha.” 2012 T.C. Mem. 121, at pp. 10-11.

Catherine Marie was in deep enough to forfeit her innocence, IRS discretion to the contrary notwithstanding. Her interest was not imputed solely by community property law nor was her ownership nominal. As for abuse, though Catherine Marie brought in some evidence that Fighting Bob did abuse her, she worked with their accountant to prepare the tax returns for the years at issue, so she was hardly terrorized into acquiescing.

Note that Fighting Bob was pro se. Not bad work for a copycat, this marshalling the arguments and selling them to Judge Haines. Many a lawyer could do worse.

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