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Penalties
Year Deficiency1 Sec. 6663
Michael J. Downing 1994 $7,396 $5,444
1995 29,557 22,088
Sandra M. Downing 1994 $2,545 $2,012
1995 20,432 15,404
1 Of these totals for Michael J. Downing (hereinafter sometimes
referred to as Michael), for 1994, $2,773 is income tax under ch.
1 and $4,623 is self-employment tax under ch. 2; for 1995,
$19,065 is income tax under ch. 1 and $10,492 is self-employment
tax under ch. 2. For Sandra M. Downing (hereinafter sometimes
referred to as Sandra), all the amounts are income tax under ch.
1.
Both sides apparently view the facts in the instant case as
leading to Michael’s being solely liable for self-employment tax
on any additional net earnings from self-employment, regardless
of the disposition of the community property issue. That is,
neither side views Sandra’s involvement in the business as
resulting in a partnership. See sec. 1402(a)(5)(A). Petitioners
did not file joint returns for either of the years in issue
(infra note 4), and so Sandra does not have joint and several
liability for Michael’s self-employment tax. See sec. 1.6017-
1(b), Income Tax Regs.; see also Johnson v. Commissioner, 74 T.C.
1057, 1062 (1980), affd. 661 F.2d 53 (5th Cir. 1981).
In each notice of deficiency, respondent determined in the
alternative to the fraud penalty that “the addition prescribed by
Section 6662(a)” applies (in an unspecified amount) for each
year. In the answer, respondent narrows this determination to
the negligence penalty, section 6662(b)(1), but the amount
remains unspecified.
At trial and on brief respondent conceded that if
petitioners’ marriage contract was effective to take petitioners
out of Louisiana’s usual community property matrimonial regime,
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Last modified: May 25, 2011