Seven Year Itch ?

Originally published on Passive Activities and Other Oxymorons on June 1st, 2011.
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John Adair, et ux. v. Commissioner, TC Memo 2011-75

This was an appeal from a collection due process hearing.  Taxpayers had multiple liens on their house for different tax obligations.  If all the liens were released they would have been able to borrow enough to pay off one of their obligations.  Collections decided not to go for half a loaf.  Tax Court indicated that IRS had not abused its discretion:

In his discretion, the Appeals officer decided that the benefits of the Adairs' proposal, i.e. the $58,108 in cash the government would have received, was outweighed by the impairment of the government's ability to collect the much greater total of the amounts as to which the notices of the two tax liens gave the government priority over other claims on their assets. We do not find that the Appeals officer abused his discretion.

Mona L. Herrington v. Commissioner, TC Memo 2011-73

This case was mainly interesting because of the story.

Petitioner's relationship with the boyfriend was marked by intimidation and physical abuse. When she failed to do his bidding or attempted to leave him, he reacted violently. He once threw her from a moving car. Another time when she threatened to leave him, he placed a gun against her forehead and cocked the hammer. On another occasion, in midwinter, he hit her in the head with a beer bottle and threw her from a boat into a lake. On another occasion, she testified credibly, he “gave me a picture of my daughter with her face shot out, and told me that's what would happen to her if I tried to leave.”

At some point after becoming involved with petitioner, the boyfriend obtained a video poker license and opened an establishment in Monroe, Louisiana. After only a few months, he lost his license for misdeeds that included selling liquor to a minor. The boyfriend convinced petitioner to open her own video poker business.


In 1996 petitioner acquired two video poker licenses in her own name. Because, according to petitioner's testimony, the licenses were required “to be run separately”, she opened two sandwich shops next door to each other in Farmerville, Louisiana, each with a video poker machine. Petitioner worked in the shops making sandwiches and dealing with the public. The boyfriend took charge of the finances and the books and had check-signing authority on the business bank accounts. Virtually all the shops' income resulted from video poker revenue.
Taxpayer claimed a compensation deduction for the money that Prince Charming took out of the business.  The Tax Court determined that there was no intent to compensate, but despite how tough they can be on innocent spouses, the Tax Court can sometimes recognize a damsel in distress.  They allowed the amounts he had taken as theft losses.

On a preponderance of the evidence we find (and respondent does not contend otherwise) that petitioner had no prospect of being reimbursed for any amounts the boyfriend took and that she sustained the losses in the years for which she has claimed the deductions. There is no dispute as to the amounts. On the basis of all the evidence, we hold and conclude that petitioner is entitled to deduct as theft losses incurred in a trade or business the $114,000 that the boyfriend took in 1997 and the $96,000 that he took in 1998.

Jeffrey L. Marchisio v. Commissioner, TC Summary Opinion 2011-39

Sometimes I long to find out the story behind the story knowing that it will forever be a mystery.  Mr. Marchisio was married for 15 years (1990-2005).  In 1997, his wife forged his signature to a loan document in order to buy a car.  Mr. Marchisio found out about the transaction in 2007 when he received a 1099-C from Wells Fargo reflecting the cancelation of a loan in the amount of $5,358.

 Petitioner disputes that he borrowed money from Wells Fargo or that he was a signatory to a financing agreement. Petitioner provided a copy of the financing contract to respondent, and the parties provided a copy of the financing contract to the Court. The financing contract includes two signatures, that of petitioner's former spouse and a purported signature of Jeffrey Marchisio. Petitioner asserts that the purported signature is not his. The Court notes that the purported signature on the financing contract does not appear to match petitioner's signature on the petition or on the stipulation of facts.

So the Tax Court went with the taxpayer on this one.  In the very unlikely event that Mr. Marchisio was pulling a fast one, I have to give him credit for having the presence of mind to get someone else to sign his name to the stipulation that went to the Tax Court.  From reading a lot of decisions I have concluded that there are some really dumb people out there or some otherwise smart people who think Tax Court judges are really dumb.  Regardless, I believe that Mr.  Marchisio did not know about the loan.  What is really intriguing is that he never saw the car.  So we are left to wonder who the heck was driving that car.  Noting that the former Mrs. Marchisio forged her husbands name to a loan document to purchase the car after she had been married to him for seven years, my imagination becomes inflamed.  Why would a married woman buy a car for someone.  A little seven year itch maybe.