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California law, earned income of a spouse is community property
income unless the spouses have an agreement to the contrary.
Cal. Fam. Code sec. 760 (West 1994). Community property income
is attributable 50 percent to each spouse. See Poe v. Seaborn,
282 U.S. 101 (1930). Petitioners have failed to produce any
evidence that the income they earned (i.e., the money paid to
Republic) was not community property income. We conclude that
under California law this income must be allocated 50 percent to
each petitioner.
Respondent determined that petitioners are liable for
additions to tax under section 6651(a)(1). Section 6651(a)(1)
imposes an addition to tax for failure to file a return on the
date prescribed (determined with regard to any extension of time
for filing), unless the taxpayer can establish that such failure
is due to reasonable cause and not due to willful neglect. The
taxpayer has the burden of proving the addition is improper.
2(...continued)
Leonard earned, and is taxable on, 100 percent of the income
reported as earned by "Republic Manufacturing", an alleged sub-
entity of Republic; (2) that Mrs. Leonard earned, and is taxable
on, 100 percent of the income reported as earned by "Lionheart
Enterprises" and "Lionheart Horse Farms", alleged subentities of
Republic; and (3) that 50 percent of the net income earned by
each petitioner from Republic Manufacturing, Lionheart
Enterprises, and Lionheart Horse Farms is taxable income to the
nonearning spouse.
Respondent took these inconsistent positions to protect
respondent's rights under California law because petitioners were
uncooperative married nonfilers. On brief, however, respondent
argues that all the earned income should be allocated 50 percent
to each petitioner in accordance with California community
property law.
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Last modified: May 25, 2011