Spouse's liability and the Civil Fraud Penalty

 

      The civil fraud penalty for underpayment of a tax does not apply to a spouse filing a joint return unless the IRS can show that some part of the underpayment is due to fraud of that spouse.  See Neil, Richard (1982) TC Memo 1982-228.  In Parker v US, 36 AFTR 2d 75-5028, a husband was liable for the full amount of the fraud penalty even though he resided in a community property state.  However, in a community property state, the fraud penalty may be paid out of community funds even though the wife was not involved in the fraud.  A wife has been liable for the fraud penalty when she admitted knowing that her husband had additional sources of income but failed to give the information to the return preparer and signed the joint returns knowing that the IRS didn't have the additional information.  (Bolton, Donald Sr. (1975) TC Memo 1975-373. A husband was not guilty of the fraud penalty when his wife omitted income while keeping the books. (Keene, James (1979) TC Memo 1979, 121. A husband was deemed to be liable for the fraud penalty where he had some involvement in the bookkeeping of his wife's business.  Taylor, Emma (1995) TC Memo 1995-269. However in Coleman (1988) TC Memo 1988-538, a wife was not charged a fraud penalty for her husband's activity even though she did some bookkeeping for his business. 

 

      In Robin Jenkins (1995), TC Memo 1995-563, the husband was found to have many badges of fraudulent intent and his wife's testimony was not credible.  The IRS produced no evidence that the wife was responsible for understating income or maintaining her husband's books, or that she was involved in claiming unsubstantiated deductions.  The tax court refused to presume fraud and found that the wife was not liable for the fraud penalty. 

 

      The burden of proof is on the IRS, not on the spouse.  This applies only to the civil fraud penalty, not to the tax deficiency.  Therefore a wife has been held liable for the tax deficiency even though she was not liable for the fraud penalty.  Hicks Co. (1971) 56 TC Memo 1991-284.

 

      The innocent spouse rule applies when a joint return is filed and only one spouse may have had knowledge of the understatement of tax on the return.  Partial innocent spouse relief can also be allowed when a spouse can show that she was innocent as to part of the understatement. When that showing is made, the spouse is entitled to relief from liability for tax, interest, and addition to tax attributable to a substantial understatement with respect to the specific item or items of income or deduction related to the innocent spouse status.  Bell, Amille (1989), TC Memo 1989-107.

 

 

Spouse's liability and the Civil Fraud Penalty

 

      The civil fraud penalty for underpayment of a tax does not apply to a spouse filing a joint return unless the IRS can show that some part of the underpayment is due to fraud of that spouse.  See Neil, Richard (1982) TC Memo 1982-228.  In Parker v US, 36 AFTR 2d 75-5028, a husband was liable for the full amount of the fraud penalty even though he resided in a community property state.  However, in a community property state, the fraud penalty may be paid out of community funds even though the wife was not involved in the fraud.  A wife has been liable for the fraud penalty when she admitted knowing that her husband had additional sources of income but failed to give the information to the return preparer and signed the joint returns knowing that the IRS didn't have the additional information.  (Bolton, Donald Sr. (1975) TC Memo 1975-373. A husband was not guilty of the fraud penalty when his wife omitted income while keeping the books. (Keene, James (1979) TC Memo 1979, 121. A husband was deemed to be liable for the fraud penalty where he had some involvement in the bookkeeping of his wife's business.  Taylor, Emma (1995) TC Memo 1995-269. However in Coleman (1988) TC Memo 1988-538, a wife was not charged a fraud penalty for her husband's activity even though she did some bookkeeping for his business. 

 

      In Robin Jenkins (1995), TC Memo 1995-563, the husband was found to have many badges of fraudulent intent and his wife's testimony was not credible.  The IRS produced no evidence that the wife was responsible for understating income or maintaining her husband's books, or that she was involved in claiming unsubstantiated deductions.  The tax court refused to presume fraud and found that the wife was not liable for the fraud penalty. 

 

      The burden of proof is on the IRS, not on the spouse.  This applies only to the civil fraud penalty, not to the tax deficiency.  Therefore a wife has been held liable for the tax deficiency even though she was not liable for the fraud penalty.  Hicks Co. (1971) 56 TC Memo 1991-284.

 

      The innocent spouse rule applies when a joint return is filed and only one spouse may have had knowledge of the understatement of tax on the return.  Partial innocent spouse relief can also be allowed when a spouse can show that she was innocent as to part of the understatement. When that showing is made, the spouse is entitled to relief from liability for tax, interest, and addition to tax attributable to a substantial understatement with respect to the specific item or items of income or deduction related to the innocent spouse status.  Bell, Amille (1989), TC Memo 1989-107.

 

 

DIRECT EXAMINATION IN COURT

 

(THE PRO SE VS THE IRS)

 

 

            If you end up in a criminal trial, a Tax Court trial, or a District Court action against the IRS; you will have to understand something about the direct examination of witnesses.

            Be sure to make your questions as simple as possible so that the witness will understand the subject and the jury will understand the question.  Remember that the jurors are there to see and hear what the witness has to say.  If you intrude on the witness, you will diminish the effectiveness of the witness' presentation.

 

            You are not allowed to ask leading questions. (A leading question is a question that suggests the answer to the witness).  If you do ask a leading question, the government attorney will probably object. Remember that some courts take the position that any question that can be answered "yes" or "no" is a leading question.  If you don't want to be interrupted by objections, try to ask questions that do not call for "yes" or "no" answers.

 

            There are times when you can ask leading questions. Federal Rule of Evidence 611(c) states as follows:

 

                 The rule continues the traditional view that the suggestive powers of the leading question are as a general proposition undesirable. Within this tradition, However, numerous exceptions have achieved recognition: The witness who is hostile, unwilling, or biased; the child witness or the adult with communication problems; the witness whose recollection is exhausted; and undisputed preliminary matters. 3 Wigmore Section 744- 778.  An almost total unwillingness to reverse for infractions has been manifested by appellate courts. See cases cited in 3 Wigmore Section 770. The matter clearly falls within the area of control by the judge over the mode and order of interrogation and presentation and accordingly is phrased in words of suggestion rather than command.

 

            Therefore, when you cross examine you can ask questions that introduce material that is not in dispute; that refresh the recollection of a witness when he can't remember; to assist an individual who doesn't understand like a child or an illiterate person; or to impeach the credibility of a hostile witness.

            You may also need to introduce exhibits into your direct examination.  Here is what to do:

 

            1.  Produce the exhibit in court.

             2.  Ask the court for permission to have the exhibit marked with an exhibit number.

            3.  Show the exhibit to the                          government attorney.

            4.  Show the exhibit to the witness and ask the following:

                       a.  Do you recognize this                                         exhibit?

                       b.  What is it?

               5.  The exhibit can be offered into evidence when the foundation has been laid. (You must make sure that a foundation has been laid to establish the admissibility of the exhibit.  See Federal Rule of Evidence 104).

 

     6.  You may wish to ask the judge if the jury may be permitted to see the exhibit; and be sure to refer to it by number in future comments.

 

            Generally witnesses are not allowed to remain the courtroom during the trial (Fed R. Evid. 615); however your trial judge may not require that the witnesses remain sequestered.

            In order to avoid leading questions, you might consider starting your questions with the following words:  Who; What; When; Where; How; and Why?  Also, do your best not to start questions with the words Do; Did; Didn't; Is; Are; Were, Etc. because you may ask a leading question.

 

            If you make a mistake and the objection is sustained; you might consider the following remedy:

 

            For example:

            Did you get in the car?  (leading question)

            Who got in the car?  (permissible question)

 

            When you put your witness on the stand; you should first get the general background from the witness.  You may wish to ask questions such as:

 

            Where do you live?

            What type of residence is that?

            How long have you lived there?

            How many children do you have?

            What do you do for a living?

            Etc.

           

            During the testimony of the witness, you may with to stop a witness or prod him to continue.  You may wish to use phrases such as: "Thank you, now let me ask..." or "Go on..."

            You must remain in control of the examination.  You must be the leader in the courtroom and that means you must know something about the rules of evidence.

           

            Be sure that you do not present irrelevant evidence and don't be intimidated by objections.  Know your proof and don't forget to introduce it.  Don't repeat or comment on the answers the witness gives to your questions.  Remember that the government attorney will probably cross-examine the witness.

 

            In summary, evidence may be introduced by stipulation, judicial notice, self-authenticating exhibits or the testimony of a witness.  If you stipulate to enter evidence that means that you and the government agree on the evidence. The judge may take notice of a particular fact without the need to present evidence to prove the fact.  The principal manner, however, for the introduction of evidence, is introduction through a witness.

 

              Good luck and relax; it takes practice to learn these skills well; but you are capable of learning more than you think.