The petitioner did not take part in the preparation of these joint returns. They were prepared by a public accountant and signed by the petitioner at the instruction of her husband. The following amounts of gross income were omitted from the joint United States income tax returns filed by petitioner and Lewis for the taxable years 1960 to 1962, inclusive: The following amounts of omitted gross income constitute gross income from community property acquired during the marriage of petitioner to Lewis: During the years 1960 to 1962, both petitioner and Lewis drove a Cadillac. During the period from 1960 to 1962, petitioner and Lewis built a new two-story colonial home. On January 10, 1966, petitioner and Lewis were divorced. In the property settlement incident to the divorce, petitioner received the following property: all household furniture and fixtures owned by petitioner and her spouse; a coin-operated laundry; five horses, including one registered thoroughbred and one registered quarter horse; one horse trailer; one 1960 Cadillac automobile; one 1964 Chevrolet automobile; one 1958 pickup truck; a promissory note with a balance due of $2,125.19; 1,576 shares of stock in National American Life Insurance Co.; the residence occupied by petitioner and her spouse; and various other parcels of encumbered real estate. Following the settlement, petitioner was informed by the president of the bank in Roswell, N.Mex., that much of the real property received in the settlement was encumbered by mortgages. In settlement of these liabilities, petitioner conveyed to the bank all the real estate described in the divorce decree other than the house. The house petitioner received in the property settlement was encumbered by a mortgage in the principal amount of $30,000. On January 28, 1966, petitioner sold the house for $90,000. In payment for the house, petitioner received $27,000 in cash, the balance to be paid in installments of $4,000 per year. Petitioner used about $10,000 of the cash received to pay debts previously incurred by Lewis. The remainder of the cash was used to pay debts relating to medical bills and college expenses of petitioner's sons. From 1960 until the divorce became final, Lewis spent very little time in Roswell with petitioner and their children. During this period, petitioner provided for the support of herself and her children. Under the terms of the divorce decree, Lewis was required to make payments of $150 per month to petitioner for the support of their two children. Lewis failed, however, to make these payments. OPINION Section 6013(e) 3 provides that in certain circumstances, a spouse who has filed a joint return will be relieved of liability for tax to the extent that such liability is attributable to omissions from gross income of amounts attributable to the other spouse. The "innocent SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND WIFE. (e) SPOUSE Relieved of LIABILITY IN CERTAIN CASES.—— (1) IN GENERAL.-Under regulations prescribed by the Secretary or his delegate, if(A) a joint return has been made under this section for a taxable year and on such return there was omitted from gross income an amount properly includable therein which is attributable to one spouse and which is in excess of 25 percent of the amount of gross income stated in the return, (B) the other spouse establishes that in signing the return he or she did not know of, and had no reason to know of, such omission, and (C) taking into account whether or not the other spouse significantly benefited directly or indirectly from the items omitted from gross income and taking into account all other facts and circumstances, it is inequitable to hold the other spouse liable for the deficiency in tax for such taxable year attributable to such omission, then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent that such liability is attributable to such omission from gross income. (2) SPECIAL RULES.-For purposes of paragraph (1)— (A) the determination of the spouse to whom items of gross income (other than gross income from property) are attributable shall be made without regard to community property laws, and (B) the amount omitted from gross income shall be determined in the manner provided by section 6501 (e) (1) (A). spouse" must comply with all three requirements in order to gain the relief afforded by the statute. Raymond H. Adams, 60 T.C. 300 (1973); Jerome J. Sonnenborn, 57 T.C. 373 (1971); Nathaniel M. Stone, 56 T.C. 213, 227 (1971). The respondent concedes that the petitioner meets the requirements of paragraph (e)(1)(B) for all 3 years in issue. With regard to the year 1960, respondent contends that petitioner has failed to meet the requirements of paragraphs (e) (1) (A) and (e)(1) (C) of section 6013. Although conceding that petitioner also meets the requirement of paragraph (e)(1)(A) for the years 1961 and 1962, respondent contends that petitioner has failed to meet the requirement of paragraph (e) (1) (C) for those years. The first requirement of section 6013(e) is that the amount of omitted gross income that is attributable to one spouse must be in excess of 25 percent of the amount of gross income stated in the return. Section 6013(e) (2) provides that the determination of the spouse to whom items of gross income are attributable shall be made without reference to community property laws except that in the case of gross income from property, the determination is made with regard to community property laws. New Mexico is a community property State which follows the general rule that all real and personal property acquired after marriage by either spouse other than by gift, descent, or devise is community property. N.M. Stat. Ann. sec. 57-4-1 (1953); Burlingham v. Burlingham, 72 N.M. 433, 384 P. 2d 699 (1963). Respondent contends that petitioner has failed to meet the first requirement of section 6013 (e) for the year 1960. For purposes of section 6013 (e) (1) (A), respondent has computed the omissions attributable to Lewis for the year 1960 as follows: The respondent contends that this total amount of $20,672.84 is less than 25 percent of the gross income stated in the 1960 joint return and that petitioner, therefore, has failed to meet the requirements of section 6013 (e) (1) (A). The respondent has arrived at this conclusion by taking the figure of $235,735, the amount of gross income reported on the 1960 joint return, and multiplying it by 25 percent to arrive at a figure of $58,933.75, which is greater than $20,672.84, the total amount of omissions allegedly attributable to Lewis for the year 1960. Petitioner argues that the distributions from Allen Grain Co., Inc., the rent income from Allen Cartage Co., Inc., and the gain on the transfer of assets to Allen Grain Co., Inc., should not be classified as 126 61 UNITED STATES TAX COURT REPORTS Such relief is not available, however, with regard to deductions dis- Charles J. Hlavinka, for the petitioner. (125) WILES, Judge: Respondent determined the following deficiencies in petitioner's income tax: The only issue for our decision is whether petitioner can be relieved of liability for the deficiencies as an "innocent spouse" pursuant to section 6013(e)2 of the Internal Revenue Code of 1954. Petitioner does not contest the correctness of the deficiencies. FINDINGS OF FACT Some of the facts have been stipulated and are found accordingly. The petitioner is Jennie Allen, who resided in Mt. Pleasant, Tex., at the time of the filing of the petition herein. Petitioner and her former spouse, Lewis E. Allen (hereinafter referred to as Lewis), filed joint Federal income tax returns for the taxable years 1960, 1961, and 1962 with the district director of internal revenue at Albuquerque, N. Mex. Petitioner and Lewis were married in November 1942. From that time through 1962 petitioner and Lewis were residents of the State of New Mexico. During the years in issue, Lewis, was engaged in the government grain storage business in Lubbock, Tex. This business was conducted through two controlled corporations, Allen Cartage Co., Inc., and Allen Grain Co., Inc. Lewis was also engaged in other business activities during the years in issue. On the joint United States income tax returns filed by petitioner and Lewis for the taxable years 1960 to 1962, inclusive, the following amounts of gross income were reported: The parties have stipulated that the deficiency in income tax for the year 1959 is barred by the statute of limitations. 2 All statutory references are to the Internal Revenue Code of 1954, as in effect during the years in issue, unless otherwise indicated. The petitioner did not take part in the preparation of these joint returns. They were prepared by a public accountant and signed by the petitioner at the instruction of her husband. The following amounts of gross income were omitted from the joint United States income tax returns filed by petitioner and Lewis for the taxable years 1960 to 1962, inclusive: The following amounts of omitted gross income constitute gross income from community property acquired during the marriage of petitioner to Lewis: During the years 1960 to 1962, both petitioner and Lewis drove a Cadillac. During the period from 1960 to 1962, petitioner and Lewis built a new two-story colonial home. On January 10, 1966, petitioner and Lewis were divorced. In the property settlement incident to the divorce, petitioner received the Following property: all household furniture and fixtures owned by petitioner and her spouse; a coin-operated laundry; five horses, inluding one registered thoroughbred and one registered quarter horse; one horse trailer; one 1960 Cadillac automobile; one 1964 Chevrolet utomobile; one 1958 pickup truck; a promissory note with a balance |