- 23 -
We have held, supra, that the Commissioner’s position as
to the marriage contract filings was substantially justified even
though we ultimately ruled against respondent in Downing I. If
in Downing I we had upheld respondent’s position, then presumably
Sandra would have had to report on her separate tax return one-
half of the omitted income from Michael’s plumbing business. The
question we face now is whether there was substantial
justification for the Commissioner’s position that Sandra should
be liable for the civil fraud penalty for her failure to report
that income on her separate tax return.
In order for Sandra to be liable for civil tax fraud,
respondent would have had to show that Sandra intended to evade
taxes which Sandra knew or believed she owed. See, e.g., Powell
v. Granquist, 252 F.2d 56, 60 (9th Cir. 1958); Frazier v.
Commissioner, 91 T.C. 1, 12 (1988); Danenberg v. Commissioner, 73
T.C. 370, 393-394 (1979). Sandra would not be liable if she
merely intended to help Michael evade taxes that Sandra knew or
believed Michael owed. In order to show that Sandra knew or
believed that she was taxable on the omitted income from
Michael’s plumbing business, respondent would have to show that
Sandra did not believe that the marriage contract and its filing
prevented application of Louisiana’s usual community property
laws.
Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NextLast modified: May 25, 2011