                                T.C. Memo. 2018-158



                          UNITED STATES TAX COURT



  JONATHAN ZUHOVITZKY AND ESTHER ZUHOVITZKY, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 3489-16.                             Filed September 20, 2018.



      Ronald J. Cohen and Melissa A. Perry, for petitioners.

      Mimi M. Wong, Peter N. Scharff, Shawna A. Early, Stephen C. Huggs,

Gerard Mackey, and Lyle B. Press, for respondent.



                            MEMORANDUM OPINION


      VASQUEZ, Judge: This matter is presently before the Court on

respondent’s motion for partial summary judgment.1 The issue for decision is


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                         (continued...)
                                         -2-

[*2] whether petitioner Esther Zuhovitzky is subject to U.S. tax on her worldwide

income in the absence of a section 6013(g) election.

                                     Background

       The following facts are based on the parties’ pleadings, motion papers, and

their stipulation of fact, including the declarations and exhibits attached thereto.

See Rule 121(b). Petitioners are married and resided in Germany together when

they filed their petition.

       During the years at issue, petitioner Jonathan Zuhovitzky was a citizen of

both Israel and the United States; petitioner Esther Zuhovitzky was a citizen of

both Israel and Austria. Esther has never resided in the United States. Petitioners

filed joint tax returns for 1992 through 2008 but never filed an election under

section 6013(g) to treat Esther as a resident of the United States during these

years.2

       Respondent issued a notice of deficiency for the years at issue, in which

respondent determined the following:



       1
       (...continued)
Revenue Code (Code) in effect for the years at issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
       2
         The period for assessment of income tax has expired with respect to
petitioners’ income tax liabilities for 1992 through 1999.
                                          -3-

[*3]                                                               Fraud penalty
            Year                      Deficiency                     sec. 6663
            2000                     $276,596.00                   $207,447.00
            2001                      265,143.00                     198,857.25
            2002                      244,427.00                     183,320.25
            2003                      337,244.00                     252,933.00
            2004                      299,062.00                     224,296.50
            2005                      174,870.00                     131,152.50
            2006                      308,746.00                     231,559.50
            2007                      124,137.00                      93,102.75
            2008                      137,467.00                     103,100.25

These deficiencies and penalties stem from determined unreported interest and

dividend income from a UBS account in Esther’s name.

       On February 9, 2018, respondent filed a motion for partial summary

judgment. Therein, respondent argues that petitioners’ filing of joint returns for

the years at issue subjected them to U.S. tax on Esther’s foreign-source income

despite petitioners’ failure to file a section 6013(g) election.

                                      Discussion

I.     Burden of Proof

       The purpose of summary judgment is to expedite litigation and avoid costly,

time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner, 90
                                        -4-

[*4] T.C. 678, 681 (1988). The Court may grant summary judgment “upon all or

any part of the legal issues in controversy” when there is no genuine dispute as to

any material fact and a decision may be rendered as a matter of law. Rule 121(a)

and (b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff’d, 17

F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we

construe factual materials and inferences drawn from them in the light most

favorable to the nonmoving party. Sundstrand Corp. v. Commissioner, 98 T.C. at

520. However, the nonmoving parties “may not rest upon the mere allegations or

denials” of their pleadings but instead “must set forth specific facts showing that

there is a genuine dispute for trial.” Rule 121(d); see Sundstrand Corp. v.

Commissioner, 98 T.C. at 520.

II.   Statutory Framework

      Section 6013(a) permits married couples to file joint returns, except that “no

joint return shall be made if either the husband or wife at any time during the

taxable year is a nonresident alien”. Sec. 6013(a)(1). However, section 6013(g)

provides an exception to this exception. Under section 6013(g) a nonresident

alien spouse may elect treatment as a U.S. resident for the purposes of U.S.

Federal income tax. Sec. 6013(g)(1). After making this election the couple may

then file jointly. See sec. 6013(g). As the election treats the nonresident spouse as
                                          -5-

[*5] a U.S. resident for purposes of chapters 1 and 24 of the Code, it also subjects

that spouse’s foreign-source income to U.S. taxation. See secs. 1, 61; sec. 1.6013-

6(a), Income Tax Regs.

       To make the section 6013(g) election, taxpayers must attach a statement to

their joint return for the first taxable year for which the election will be in effect.

Sec. 1.6013-6(a)(4), Income Tax Regs. This statement must include a declaration

that the election is being made and that the requirements of the regulation are met

for the taxable year. Id. subdiv. (ii). The statement must contain the name,

address, and taxpayer identifying number of each spouse and must be signed by

both persons making the election. Id.

       In this case the parties have stipulated that petitioners never made an

election under section 6013(g).

III.   Respondent’s Motion for Partial Summary Judgment

       Respondent argues that Esther’s worldwide income should be subject to

U.S. income tax despite petitioners’ failure to meet the technical requirements of

the section 6013(g) election. Respondent relies upon the doctrines of substantial

compliance and the duty of consistency. There are factual determinations required

by both doctrinal analyses that remain in dispute, and so we will deny
                                          -6-

[*6] respondent’s motion for partial summary judgment. We address each of

respondent’s arguments below.

      A.     Substantial Compliance

      The substantial compliance doctrine is a narrow equitable doctrine that we

may apply to avoid hardship where one party establishes that the other party

intended to comply with a provision, did everything reasonably possible to comply

with the provision, but did not comply with the provision because of a failure to

meet the provision’s specific requirements. Samueli v. Commissioner, 132 T.C.

336, 345 (2009) (citing Sawyer v. County of Sonoma, 719 F.2d 1001, 1007-1008

(9th Cir. 1983); Fischer Indus., Inc v. Commissioner, 87 T.C. 116, 122 (1986),

aff’d, 843 F.2d 224 (6th Cir. 1988); Credit Life Ins. Co. v. United States, 948 F.2d

723, 726-727 (Fed. Cir. 1991); Prussner v. United States, 896 F.2d 218 , 224 (7th

Cir. 1990); and Estate of Chamberlain v. Commissioner, T.C. Memo. 1999-181,

aff’d, 9 F. App’x 713 (9th Cir. 2001)).

      Under the substantial compliance doctrine, petitioners must have both

intended to make the section 6013(g) election and substantially complied with the

requirements for the election. See Samueli v. Commissioner, 132 T.C. at 345-346;

Phillips v. Commissioner, 86 T.C. 433, 438 (1986), aff’d in part, rev’d in part, 851

F.2d 1492 (D.C. Cir. 1988). Respondent contends that by filing joint returns,
                                         -7-

[*7] petitioners expressed their intent to make a section 6013(g) election.3

Petitioners, on the other hand, argue that they had no intent to make a section

6013(g) election. Petitioners’ intent is a matter of material fact in dispute, and

thus, the issue of substantial compliance is inappropriate for summary judgment

and requires trial.4

      B.     Duty of Consistency

      We may also apply the equitable doctrine of “quasi-estoppel” or “the duty of

consistency.”5 LeFever v. Commissioner, 103 T.C. 525, 541 (1994), aff’d, 100

F.3d 778 (10th Cir. 1996). The “duty of consistency” is based on the theory that


      3
         We note that in a Chief Counsel Advisory, respondent previously stated
that taxpayers were not treated as making an election under sec. 6013(g) based on
their mere filing of joint returns. See Chief Counsel Advisory 201325013, 2013
WL 3126531 (Feb. 14, 2013).
      4
         Because whether petitioners intended to make the sec. 6013(g) election is
unclear, we do not have to reach the issue of petitioners’ compliance with the
election. We note, however, that this analysis would be difficult, if not
inappropriate, to make at the summary judgment stage as petitioners’ returns for
the years at issue have not been entered into the record before us.
      5
         Petitioners contend that their case is appealable to the U.S. Court of
Appeals for the Second Circuit. That Court of Appeals does not seem to recognize
the duty of consistency. See Bennet v. Helvering, 137 F.2d 537 (2d Cir. 1943).
However, because petitioners resided in Germany when they filed their petition, an
appeal for this case lies with the U.S. Court of Appeals for the D.C. Circuit absent
a stipulation to the contrary. See sec. 7482(b). There does not appear to be a bar
against the application of the duty of consistency in the D.C. Circuit.
                                         -8-

[*8] the taxpayer owes the Commissioner the duty to be consistent with his tax

treatment of items and will not be permitted to benefit from his own prior error or

omission. S. Pac. Transp. Co. v. Commissioner, 75 T.C. 497, 838-839 (1980).

The duty of consistency doctrine prevents a taxpayer from taking one position one

year and a contrary position in a later year after the limitations period has run on

the first year. Herrington v. Commissioner, 854 F.2d 755, 757 (5th Cir. 1988),

aff’g Glass v. Commissioner, 87 T.C. 1087 (1986).

      A taxpayer is placed under a duty of consistency when: (1) the taxpayer has

made a representation or reported an item for tax purposes in one year, (2) the

Commissioner has acquiesced in or relied on that fact for that year, and (3) the

taxpayer desires to change the representation, previously made, in a later year after

the statute of limitations on assessments bars adjustments for the initial year.

Lefever v. Commissioner, 103 T.C. at 543. The second of these requirements is

satisfied when a taxpayer files a return that contains an inadequately disclosed

item of which the Commissioner was not otherwise aware, the Commissioner

accepts that return, and the time to assess tax expires without an audit of that

return. Estate of Letts v. Commissioner, 109 T.C. 290, 300 (1997). To avoid

meeting the second requirement, the taxpayer must provide the Commissioner

with sufficient facts to supply him with actual or constructive knowledge of a
                                          -9-

[*9] possible mistake in the reporting of the erroneously disclosed item. Hughes

& Luce, LLP v. Commissioner, T.C. Memo. 1994-559, aff’d, 70 F.3d 16 (5th Cir.

1995).

      Respondent contends that the Court should treat petitioners as if they had

made a section 6013(g) election under the duty of consistency. Respondent argues

that petitioners represented that they were eligible to file joint returns by filing

joint returns from 1992 through 2008. Respondent further argues that because

Esther was a nonresident alien, petitioners were entitled to file joint returns only

if: (1) they made a section 6013(g) election or (2) Esther satisfied the substantial

presence test under section 7701(b)(3). Respondent reasons that, in the absence of

a section 6013(g) election, respondent still could have concluded from petitioners’

returns that Esther was a U.S. resident by way of the substantial presence test.

Respondent contends that he relied upon this representation by accepting

petitioners’ joint returns and that petitioners are now trying to change their

representation about their joint-filing eligibility after the expiration of the period

of limitations for 1992 through 1999.6




      6
         Respondent surmises that petitioners enjoyed favorable tax rates on
Jonathan’s worldwide income and Esther’s U.S.-source income by filing joint
returns.
                                        - 10 -

[*10] Petitioners argue that respondent’s acceptance of their joint returns cannot

constitute reliance because respondent was well aware that petitioners had not

filed a section 6013(g) election. Petitioners also contend that respondent was well

aware of the need for a section 6013(g) election in this case.

      Like the substantial compliance analysis, the duty of consistency analysis

requires factual determinations. Without access to petitioners’ returns for the

years at issue, we cannot discern what facts petitioners provided to respondent

about Esther’s residency. Accordingly, we are not able to determine the nature of

petitioners’ representation or whether respondent had actual or constructive

knowledge that petitioners erroneously filed joint returns. Therefore, matters of

material fact are in dispute, and this issue is inappropriate for summary judgment.

As we cannot proceed with our analysis under either the duty of consistency or

substantial compliance, we will deny respondent’s motion for partial summary

judgment as a whole.

      To reflect the foregoing,


                                                 An appropriate order will be issued.
