                         T.C. Memo. 1999-218



                       UNITED STATES TAX COURT



               DANIEL F. LAYMAN, II, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.       15189-97, 15190-97, Filed July 2, 1999.
                       15191-97.



     James Benham, for petitioner.

     Pamelya P. Herndon and Andrew J. Horning, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAMBLEN, Judge:    Respondent determined deficiencies and

additions to tax with regard to petitioner's 1991, 1992, and 1993

Federal income tax liabilities as follows:
                                 - 2 -

                                 Additions to Tax Under Internal
                                      Revenue Code Sections
Year        Deficiency                6651(a)       6654(a)
1991        $2,974.00                 $619.75       $139.39
1992        12,553.00                3,138.25        547.45
1993         2,546.00                  636.50        106.65

       Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

       After concessions by both parties,1 the issue for decision

is whether respondent can use section 66(b) to disregard the

application of Arizona's community property laws in calculating

petitioner's 1991, 1992, and 1993 income tax liability.

Petitioner did not file an income tax return for taxable years

1991, 1992, or 1993.     Respondent mailed statutory notices of

deficiency to petitioner at his last known address for the

taxable years 1991, 1992, and 1993, on April 14, 1997.

Respondent determined petitioner's income tax liability based on

a single filing status with one personal exemption, without


       1
      Petitioner has conceded the following assignments of error.
First, that his filing status for the taxable years 1991, 1992,
and 1993 shall be married filing separately. Second, that he
received taxable unemployment compensation in the amount of
$4,810 in 1993. Third, that he is liable for additions to the
tax under secs. 6651(a) and 6654(a) for the taxable years 1991,
1992, and 1993, in amounts which will be determined based on the
outcome of these cases.

     Respondent has conceded that petitioner shall be allowed to
claim two exemptions in taxable year 1992: One for himself, and
one for his son, Daniel F. Layman III.
                                - 3 -

making any adjustment to petitioner's unreported income for

Arizona's community property law.    The notices of deficiency fail

to mention community property law, section 66(b), or facts which

would allow respondent to invoke section 66(b).    Petitioner

lodged income tax returns with respondent for the taxable years

1991, 1992, and 1993, on September 15, 1997, as joint returns,

claiming six exemptions for 1991 and 1992 and four exemptions for

1993.

                          FINDINGS OF FACT

       This case was submitted without a trial pursuant to Rule

122.    The stipulation of facts and accompanying exhibits are

incorporated herein by this reference.

       Daniel F. Layman, II, petitioner, resided in Phoenix,

Arizona, on the date the petitions in these cases were filed.

Petitioner was married to Margaret A. Layman (Peggy Layman) at

all times from January 1, 1991, through December 31, 1993,

inclusive.    Petitioner and Peggy Layman were calendar year

taxpayers.    There were four children born of the marriage between

petitioner and Peggy Layman.

       During the calendar years 1991, 1992, and 1993, petitioner

and Peggy Layman lived separate and apart.    Petitioner and Peggy

Layman did not enter into a written agreement of separation at
                                - 4 -

any time prior to December 31, 1993.     Petitioner and Peggy Layman

were divorced in taxable year 1994.2

     During the calendar years 1991, 1992, and 1993, petitioner

was a resident of Phoenix, Arizona.     Arizona is a community

property state.   Peggy Layman was never a resident of Arizona in

the calendar years 1991, 1992, or 1993.     Peggy Layman was a

resident of Bailey, Colorado, during calendar year 1991, and from

January through July 1992.   From August 1992 through December

1993, Peggy Layman was a resident of Grafton, West Virginia.

Colorado and West Virginia are not community property states.

     During the calendar year 1991, petitioner received taxable

wages in the amount of $25,380 from GTE Health Systems, Inc.

Petitioner also received taxable wages in the amount of $9,855

from Mark F. Johnson, Inc. during 1991.     During the calendar year

1992, petitioner received taxable wages in the amount of $60,414

from GTE Health Systems, Inc.   During the calendar year 1993,

petitioner received taxable wages in the amount of $18,202 from

GTE Health Systems, Inc., and taxable unemployment compensation

in the amount of $4,810.   Petitioner did not inform Peggy Layman



     2
      We note that both petitioner and Peggy Layman filed for
divorce in 1994, and that the record contains two separate
dissolutions of marriage. On Sept. 20, 1994, the marriage was
dissolved in civil action number DR 94-06121 in the Superior
Court of the State of Arizona, in and for the County of Maricopa.
On Sept. 26, 1994, the marriage was dissolved in civil action
number 94-D-56 in the Circuit Court of Taylor County, West
Virginia.
                              - 5 -

of the total amount of income he received during calendar years

1991, 1992, and 1993.

     Peggy Layman earned wages of $1,660 in 1991, $4,724 in 1992,

and $18,821 in 1993.

     During calendar year 1991, petitioner made 15 separate wire

transfers to Peggy Layman totaling $10,800, as follows:

          Date             Amount

          1/3              $500
          1/7             2,000
          1/25              950
          2/8             1,000
          2/26            1,200
          4/5             1,500
          5/10              105
          8/16              150
          8/22              500
          9/9               305
          9/20              500
          10/9              600
          11/18             500
          12/6              300
          12/13             500

          1991 Total    $10,6103

The $10,800 was deposited into checking account No. 2046133 held

at the Mountain Valley National Bank in Conifer, Colorado.   In

addition, petitioner sent two checks to Peggy Layman in October

1991, one for $200 and one for $500, written on petitioner's

checking account held at First Interstate Bank in Phoenix,




     3
      We note that the parties stipulated that the total wire
transfers for 1991 is $10,800. This difference is immaterial to
the outcome of the cases.
                                  - 6 -

Arizona.   These wire transfers and checks were for Peggy Layman's

support and the support of their three youngest children.

     During the calendar year 1992, petitioner made 24 separate

wire transfers to Peggy Layman totaling $10,915, as follows:

           Date            Amount

           1/9             $505
           1/27             505
           2/13             505
           2/21             505
           3/10             505
           3/23             500
           4/6              505
           4/15             205
           4/17             505
           5/5              505
           5/18             505
           6/11             505
           7/10             500
           7/27             750
           8/21             750
           8/28             360
           9/16             270
           9/18             430
           10/9             350
           10/15            350
           11/17            350
           11/25            350
           12/10            350
           12/23            350

           1992 Total   $10,915


Part of the $10,915 was deposited into checking account No.

2046133 held at the Mountain Valley National Bank in Conifer,

Colorado, and part was deposited into checking account No.

0873733 held at the Community Bank & Trust in Grafton, West
                                - 7 -

Virginia.    These funds were for Peggy Layman's support and the

support of their three youngest children.

     In addition, petitioner sent two checks to Peggy Layman

during the calendar year 1992, one for $600 for his son's

graduation and one for $350 for the support of his wife and their

two youngest children.    Both of these checks were written on

petitioner's checking account held at First Interstate Bank in

Phoenix, Arizona.

     During the calendar year 1993, petitioner made seven wire

transfers to Peggy Layman totaling $2,700, as follows:

            Date             Amount

            1/12             $350
            1/21              400
            2/4               550
            2/18              350
            3/12              350
            3/18              350
            3/31              350

            1993 Total     $2,700

The $2,700 was deposited into checking account No. 0873733 held

at the Community Bank & Trust in Grafton, West Virginia.    These

funds were for Peggy Layman's support and the support of their

two youngest children.

     Petitioner and Peggy Layman had signature authority on

checking account No. 2046133 held at the Mountain Valley National

Bank in Conifer, Colorado.    Petitioner did not write any checks
                               - 8 -

on account No. 2046133 held at Mountain Valley National Bank in

Conifer, Colorado, in the taxable years 1991, 1992, and 1993.

                              OPINION

     Married persons who reside in a community property State are

generally each required to report one-half of their community

income for Federal income tax purposes.    See United States v.

Mitchell, 403 U.S. 190 (1971); Drummer v. Commissioner, T.C.

Memo. 1994-214, affd. without published opinion 68 F.3d 472 (5th

Cir. 1995).   Petitioner contends that under Arizona law, his

1991, 1992, and 1993 income is community income and that he is

required to report and be taxed on only one-half of that

community income for Federal tax purposes.

     On brief, respondent relies solely on the provisions of

section 66(b) to deny petitioner the income-splitting benefits of

Arizona's community property law.    Section 66(b) provides:

     The Secretary may disallow the benefits of any
     community property law to any taxpayer with respect
     to any income if such taxpayer acted as if solely
     entitled to such income and failed to notify the
     taxpayer's spouse before the due date (including
     extensions) for filing the return for the taxable
     year in which the income was derived of the nature
     and amount of such income.

I.   Nature of Petitioner's Income

     The law of the State where the acquiring spouse is domiciled

at the time applies to determine whether the property is

community property or not.   See Restatement (Second) Conflict of

Laws sec. 258 comment (c) (1971), as cited in the Arizona case of
                                - 9 -

In re Martin, 752 P.2d 1026 (Ariz. Ct. App. 1986).     Petitioner

resided in Phoenix, Arizona, throughout the years 1991, 1992, and

1993.    Arizona is a community property state.   Peggy Layman

resided in Colorado until August 1992 and resided in West

Virginia thereafter.    Colorado and West Virginia are not

community property states.

     In Arizona, all property acquired by either husband or wife

during the marriage, except that which is acquired by gift,

devise or descent, is community property of the husband and the

wife.    See Ariz. Rev. Stat. sec. 25-211 (West Supp. 1998);

Guerrero v. Guerrero, 502 P.2d 1077 (Ariz. Ct. App. 1972).       The

marital community continues to exist in Arizona until the spouses

receive a divorce or a decree of legal separation.     See Jurek v.

Jurek, 606 P.2d 812, 813 (Ariz. 1980); Lynch v. Lynch, 791 P.2d

653, 655 (Ariz. Ct. App. 1990).    Moreover, the marital community

continues to exist even when the spouses are living separate and

apart.    See id.

     Petitioner and his wife lived separate and apart during the

calendar years 1991, 1992, and 1993.    During the 3-year period

from 1991 through 1993, there was no written agreement of

separation between petitioner and his wife.    Petitioner and his

wife were not divorced until the taxable year 1994.

     Generally, under the community property laws of the State of

Arizona, the income petitioner received in 1991, 1992, and 1993,
                              - 10 -

is considered community property.    See Goodell v. Koch, 282 U.S.

118 (1930); Beall v. Commissioner, 82 T.C. 70 (1984).   Under the

law of Arizona, the physical separation of petitioner and Peggy

Layman did not alter the community character of petitioner's

post-separation earnings in 1991, 1992, and 1993.   Consequently,

since petitioner and Peggy Layman were not legally separated, the

community property laws of Arizona apply to petitioner's earnings

for the taxable years 1991, 1992, and 1993.

II.   Application of Section 66(b)

      Section 66(b) authorizes the Commissioner to disallow the

benefits of any community property law to a taxpayer with respect

to any income if (1) the taxpayer acted as if solely entitled to

such income, and (2) the taxpayer failed to notify the taxpayer's

spouse of the nature and amount of such income before the due

date for filing the return.   See Mischel v. Commissioner, T.C.

Memo. 1997-350; Schramm v. Commissioner, T.C. Memo. 1991-523,

affd. without published opinion 988 F.2d 121 (9th Cir. 1993).

       Where a notice of deficiency fails to describe the basis on

which the Commissioner relies to support a deficiency

determination and that basis requires the presentation of

evidence that is different from that which would be necessary to

resolve the determinations that were described in the notice of

deficiency, the Commissioner will bear the burden of proof
                              - 11 -

regarding the new basis.   Shea v. Commissioner, 112 T.C. 183

(1999).

     Here, the relevant issues raised by respondent's notices of

deficiency for petitioner's failing to file include:

Petitioner's unreported income, the filing status of petitioner,

the number of exemptions petitioner is allowed, and the related

additions to tax.   The notices of deficiency fail to mention

community property law, section 66(b), or facts which would allow

respondent to invoke section 66(b).    Since the notices of

deficiency do not describe section 66(b) as respondent's basis

for disallowing the benefits of community property law to

petitioner, and different evidence will be necessary to resolve

the section 66(b) issue, respondent must bear the burden of proof

regarding application of section 66(b).    See Shea v.

Commissioner, supra.

     Respondent contends that the following facts demonstrate

that petitioner acted as if he were solely entitled to the

income.   First, respondent posits that petitioner had complete

control and dominion over his income for the taxable years 1991,

1992, and 1993.   Second, respondent alleges that the fluctuation

in the amounts petitioner sent to his former spouse for her

support and the support of their children in 1991, 1992, and

1993, is further indication that petitioner acted as though he

were solely entitled to the income.    Third, respondent alleges
                              - 12 -

that there is no evidence to show that petitioner was under a

court order to pay any part of his earnings to his former wife

for her support or for the support of their children.

     The facts on which respondent relies, either taken alone or

taken together, do not justify the conclusion that petitioner

acted as if he were solely entitled to the income.   Respondent,

first and foremost, asserts that an examination of the entire

record in this case demonstrates that petitioner had complete

control and dominion over his income for the taxable years 1991,

1992, and 1993.   Respondent alleges that the following facts

illustrate petitioner's control and dominion over the income.

During 1991 and the first 7 months of 1992, petitioner maintained

signature authority over the bank account in Conifer, Colorado,

where petitioner deposited money for his children's support and

the support of his wife.   Therefore, even though petitioner

deposited funds in an account for Peggy Layman to use for her

support and the support of her children, petitioner still

maintained the ability to remove every dollar that he deposited

in the account.   If he chose to, petitioner could have deposited

the funds one day and reclaimed them the next day.

     Respondent's allegations miss the mark.   Even though

petitioner's name was left on the bank account at Mountain Valley

National Bank in Conifer, Colorado, used exclusively by his wife

during 1991 and 1992, there is not one check or withdrawal made
                                - 13 -

by petitioner during any of the 3 years in this case.     Respondent

has not cited any instance in which petitioner actually exercised

control over the funds he transferred.    Rather, during 1991 and

1992 Peggy Layman exercised sole dominion and control over the

funds transferred to the joint account in Conifer, Colorado.

Furthermore, when Peggy Layman moved to West Virginia in 1992,

she opened her bank account without petitioner having any

interest in the account.

     Moreover, the record is replete with evidence that

petitioner did not act as if he were solely entitled to the

income in 1991, 1992, and 1993.    During 1991, 1992, and 1993,

petitioner provided substantial income for the benefit of the

marital community.   Petitioner transferred substantial funds to

his wife for her support and the support of their three youngest

children in 1991 and in 1992.    During calendar year 1991,

petitioner received taxable wages in the amount of $35,235.

During calendar year 1991, petitioner made 15 separate wire

transfers to Peggy Layman totaling $10,800.    In addition,

petitioner sent two checks to Peggy Layman during calendar year

1991, totaling $700.   During calendar year 1992, petitioner

received taxable wages in the amount of $60,414.    During calendar

year 1992, petitioner made 24 separate wire transfers to Peggy

Layman totaling $10,915.   In addition, petitioner sent two checks

to Peggy Layman during calendar year 1992, one for $600 for his
                               - 14 -

son's graduation and one for $350 for the support of his wife and

their two youngest children.

     During calendar year 1993, petitioner received taxable wages

in the amount of $18,202 and taxable unemployment compensation in

the amount of $4,810.   During calendar year 1993, petitioner made

seven wire transfers to Peggy Layman totaling $2,700 for the

support of his wife and their two youngest children.

Consequently, petitioner provided a substantial portion of the

net income for the benefit of Peggy Layman and their dependent

children during 1991, 1992, and 1993.

     Respondent also alleges that the fluctuation in the amounts

petitioner sent to his former spouse for her support and the

support of their children in 1991, 1992, and 1993, is further

indication that petitioner acted as though he were solely

entitled to the income.   Respondent places too much emphasis on

the fact that petitioner determined the amount of money, if any,

that he would send to Peggy Layman for her support and the

support of their children.   Petitioner consistently sent funds to

his wife throughout 1991, 1992, and 1993.    Petitioner sent Peggy

Layman 15 wire transfers in 1991 throughout 9 months, 24 wire

transfers in 1992 throughout all 12 months, and 7 wire transfers

in 1993 during the first 3 months of 1993.

     During 1991, petitioner sent Peggy Layman $3,450 in January,

$2,200 in February, and $1,500 in April; from August through
                              - 15 -

December, petitioner sent Peggy Layman approximately $500 to $805

a month for her support and the support of their dependent

children.   It is likely that petitioner sent larger amounts of

support during the first few months of 1991 because he and Peggy

Layman were newly separated and she needed time to establish

herself and obtain work, as she only earned $1,660 in wages

during 1991.

     During 1992, petitioner sent approximately $1,000 per month

from January through August and then $700 per month from

September through December.   During 1993, petitioner sent his

wife $750 to $1,050 per month from January through March.    It is

likely that petitioner became unemployed around this time as he

only earned $18,202 in 1993 and collected $4,810 in unemployment

compensation.   Furthermore, Peggy Layman earned $18,821 in 1993,

as compared to $4,724 in 1992, and $1,660 in 1991.   Consequently,

the fluctuations over the 3-year period may be accounted for and

do not diminish the fact that petitioner provided substantial

support for his wife and dependent children during this 3-year

period.   Moreover, since petitioner sent consistent, substantial

funds to his wife for her support and for their children's

support, the fluctuation of these funds does not demonstrate that

petitioner acted as if solely entitled to his income.

     Respondent further alleges that there is no evidence to show

that petitioner was under a court order to pay any part of his
                              - 16 -

earnings to his former wife for her support or for the support of

their children.   Respondent is certainly correct that petitioner

was not under a court order to pay child support and alimony

during the 3-year period; however, this fact does not establish

that petitioner acted as if he were solely entitled to his

income.   Respondent recognizes that it is fortunate petitioner

chose to send support payments to his former spouse even though

he was not under a legal obligation to do so.      By choosing to

send substantial funds to his wife for her support and the

support of their dependent children, petitioner did not act as

though he were solely entitled to the income during 1991, 1992,

and 1993.

III. Conclusion

     Since we have determined that petitioner did not act as if

he were solely entitled to the income, we hold that respondent

cannot use section 66(b) to disregard the application of

Arizona's community property laws in calculating petitioner's

1991, 1992, and 1993 income tax liability.

     To reflect the foregoing,

                                      Decisions will be entered

                                 under Rule 155.
