                        T.C. Memo. 1998-3



                     UNITED STATES TAX COURT



   DAVID L. WIKSELL AND MARGARET ANN CARPENDER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 11752-91.                   Filed January 5, 1998.




         On remand from the United States Court of Appeals
    for the Ninth Circuit, Held: Innocent spouse relief
    apportioned as to grossly erroneous items attributable
    to delinquent spouse. Sec. 6013(e)(1), I.R.C.; Wiksell
    v. Commissioner, 90 F.3d 1459 (9th Cir. 1996), revg.
    and remanding T.C. Memo. 1994-99, followed and applied.



     Bruce I. Hochman, for petitioner Margaret Ann Carpender.

     Steven M. Roth, for respondent.




     * This opinion supplements our opinion in Wiksell v.
Commissioner, T.C. Memo. 1994-99, revd. and remanded 90 F.3d 1459
(9th Cir. 1996).
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      SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION

     NIMS, Judge:     This case is before the Court on remand from

the Court of Appeals for the Ninth Circuit.     Wiksell v.

Commissioner, 90 F.3d 1459 (9th Cir. 1996), revg. and remanding

T.C. Memo. 1994-99.

     Respondent has conceded all additions to tax as to

petitioner Margaret Ann Carpender (petitioner or Margaret).

Margaret has conceded that deficiencies in the amounts of

$221,294 and $789,919 asserted in respondent's amended answer for

taxable years 1984 and 1985, respectively, are correct.

     All section references are to sections of the Internal

Revenue Code in effect for the years in issue, unless otherwise

indicated.   All Rule references are to the Tax Court Rules of

Practice and Procedure.

     In Wiksell v. Commissioner, T.C. Memo. 1994-99, an order of

dismissal and decision was entered against petitioner David L.

Wiksell (David) by reason of his default.    David did not file an

appeal.   The caption herein has not been changed to reflect this

fact since David and Margaret jointly filed the petition.

     On appeal, petitioner challenged our determination that she

was not an innocent spouse within the meaning of section 6013(e).

The Court of Appeals for the Ninth Circuit held that "Because

there is a significant void in the evidence which links Appellant

to much, if not the majority, of the understatement and its
                               - 3 -

related tax deficiency", the case would be remanded to this Court

to "determine what portion, if any, of the deficiency is subject

to innocent spouse relief."   Wiksell v. Commissioner, supra at

1464.

     By Order dated April 15, 1997, we granted petitioner's

Motion to Change Caption.   The amended caption of this case

reflects the fact that Margaret's name was legally changed after

her divorce from David.   A further trial was held in the remanded

matter.

     The sole issue for decision is whether petitioner qualifies

for innocent spouse relief pursuant to section 6013(e) with

respect to any portion of the deficiencies asserted in

respondent's amended answer for taxable years 1984 and 1985.

     Petitioner resided in Newhall, California, when the petition

was filed.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found. The

stipulation of facts and attached exhibits are incorporated

herein by this reference.   We adopt in full the findings of fact

in our prior memorandum opinion.   For convenience, we shall

repeat the facts as necessary to clarify the ensuing discussion,

and we make additional findings of fact.

     David and Margaret were married in 1960, legally separated

in 1988, and divorced in December, 1992.     They had three
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children.   Throughout much of their marriage Margaret and David

endured a near poverty level existence.

     Sometime in 1982 or 1983 David started his own company,

Hitech Recovery Systems, Inc. (Hitech).    David told Margaret that

Hitech was to engage in the extraction of oil from old oil wells.

     Sometime before the spring of 1984, David began working as a

real estate investment adviser for Comstock Financial Services,

Inc. (Comstock Financial), an insurance agency owned and operated

by Roy L. Comstock (Roy Comstock).     In the spring of 1984, David

became a corporate officer and vice president of Comstock

Financial, positions which he held through the fall of 1985.

During the spring of 1984, David told Margaret that Comstock

Financial was investing in Hitech.

     During the years in issue, and throughout most of her

marriage, petitioner did not share a joint checking account with

David due to his propensity for bouncing checks.    Rather,

Margaret maintained her own separate checking accounts at

Security Pacific National Bank (Security Pacific) and Santa

Clarita Bank.

     During 1984 and 1985, David maintained a business checking

account under the name of Hitech at Security Pacific.    Petitioner

was aware that both her husband and a business associate, Thane

Wilson, were signatories on this account; she, however, was not.

David periodically gave petitioner checks drawn on the Hitech

account and made payable to "Margaret Wiksell", which she
                               - 5 -

deposited into her two personal checking accounts.   In 1984,

Margaret was given 23 checks from Hitech totaling $54,500 from

funds that Hitech had obtained from Comstock Financial.   In 1985,

Margaret received 15 Hitech checks totaling $140,500 from funds

that Hitech had obtained from Comstock Financial.

     In 1984 and 1985 Margaret wrote checks on her accounts

totaling $78,781.38 and $149,444.32, respectively.   Among other

things, these checks were for clothes for Margaret and her

daughters; loans to one daughter; charitable and political

contributions; entertainment and gifts; home furnishings; home

repair and maintenance; credit card payments; mortgage payments;

and numerous other miscellaneous expenses.

     Sometime in 1985 an investigation of David's business was

initiated by the Securities and Exchange Commission (SEC).    In

October, 1985, David told Margaret that the SEC had recently

issued a temporary restraining order against David and other

employees of Comstock Financial to prevent them from soliciting

further investment funds.   Petitioner was also aware that her

husband's deposition was taken by the SEC in November, 1985, in

connection with activities that had gone on at Comstock

Financial.

     In January or February, 1987, David was arrested and charged

with fraud in connection with a scam perpetrated by Roy Comstock,

Abraham Boldt, and David, wherein it was alleged that at least $2

million, fraudulently obtained from unsuspecting investors in
                                 - 6 -

Comstock Financial, was diverted to Hitech.     David was placed in

county jail.

     In September or October, 1987, David was released from

county jail on bail.   On January 13, 1988, David pleaded guilty

to various counts of fraud involving the sale of unregistered

securities in connection with his participation in the fraudulent

investment scheme involving Comstock Financial.     He was

thereafter confined in a California state prison.

     On their returns for 1984 and 1985, petitioners reported an

adjusted gross income of $10,525 and $4,298, respectively, of

which approximately $9,801 in 1984 and $1,760 in 1985 represented

Margaret's wages from part-time nursing as reflected on Forms W-

2, Wage and Tax Statement, issued to her.     Petitioners did not

report any wages or income from Comstock Financial on their 1984

return; petitioners reported $2,538 in wages that David had

received from Comstock Financial on their 1985 return.

     During 1984, David received and retained $465,400 in

illegally diverted funds from investors of Comstock Financial.

During 1985, David received and retained $1,572,018 in illegally

diverted funds from such investors.      In addition, during 1984 and

1985 David received $3,898.68 and $63,128.23, respectively, from

the sale of oil by Hitech to various oil-related companies which

he deposited in Hitech's Security Pacific account.     In 1985,

David also received $6,944 of interest income from a Merrill

Lynch cash management account.    The record does not disclose that
                               - 7 -

Margaret was aware of the existence of these items at either the

time David received them or when the 1984 and 1985 returns were

filed.   David and Margaret reported none of these amounts on

their 1984 and 1985 returns.

     While David was in county jail, and prior to Margaret's

signing the 1984 and 1985 returns, he revealed to her the

location of separate keys to unlock the file cabinets and

briefcases where he kept his business records, in order for her

to help him obtain release on bail.    In the file cabinets and

briefcases, Margaret found "stacks of papers" related to

"everything David had been involved in for years."    She also

located David's business checkbook.    Furthermore, each month

throughout the period of her husband's incarceration in county

jail, Margaret observed letters addressed to her husband or

Hitech containing account statements from Security Pacific and

Merrill Lynch.

      At the time she signed the 1984 and 1985 returns, Margaret

questioned David about why the returns contained no income

reflecting the money that he had given her in those years.    She

stated that he gave her

     such a bizarre explanation that I don't think I could
     even repeat it, I mean what he told me. * * * It was
     something along the fact that it had been investment--
     that he had investments in * * * [Hitech] that had been
     lost and this was return, or something along those
     lines. * * * it just didn't make sense to me.
                                 - 8 -

Petitioner suspected that David was not telling her the truth,

but she would not contradict him or press him further on the

matter.   David had in the past frequently evaded giving answers

to questions about his business and finances, and when Margaret

or others "probed", he would often "fly into a rage" and

occasionally throw things.

                                OPINION

     The United States Court of Appeals for the Ninth Circuit

remanded this case to allow the Tax Court to apportion relief

under the "innocent spouse" provisions of section 6013(e).

Wiksell v. Commissioner, 90 F.3d 1459, 1464 (9th Cir. 1996).           The

Court of Appeals noted that one of the showings that a spouse

seeking innocent spouse relief must make is that in signing the

return the spouse did not know, and had no reason to know, of the

substantial understatement.     Id. at 1461.   The Court of Appeals

agreed that petitioner had reason to know of the substantial

understatement, but observed that it was not clear that she

should have known of the magnitude of the understatement.        The

Court of Appeals stated that "Application of the statute * * *

potentially generates inequitable results", Id. at 1463, and

remanded the case so that we could reevaluate our previous

decision "with the knowledge that apportionment is both available

and proper in this case."     Id. at 1464.   (Emphasis added).

     We have reevaluated our prior decision, as directed, and

have also evaluated the record generated by the further hearing.
                                 - 9 -

By doing so we are led to conclude that petitioner's former

spouse, David, was so secretive and devious about his financial

affairs, and his business records were so hopelessly arcane and

tangled, that it would have been impossible for petitioner to

obtain even an approximate idea of the magnitude of David's

dereliction.

     Petitioner was, however, precisely aware of the amounts

derived from Hitech via David that actually passed through her

hands.   As we have found, in 1984, petitioner was given 23 checks

from Hitech, totaling $54,500.    In 1985, petitioner received 15

Hitech checks totaling $140,500.    During these same years

petitioner spent substantial amounts for clothing for herself and

her children, loans to a child, charitable and political

contributions, entertainment and gifts, home furnishings, home

repair and maintenance, credit card payments, mortgage payments,

and numerous other miscellaneous expenses.

     Taking all of the facts and circumstances into

consideration, and mindful of the Circuit Court's assurance that

apportionment here is both available and proper, we hold that

petitioner did not know or have reason to know of the portions of

the understatements attributable to the grossly erroneous items

attributable to David in 1984 and 1985 in excess of the amounts

represented by the Hitech checks received by petitioner from

David in those years, and that it would be inequitable to hold

her liable for deficiencies as to those portions.
                             - 10 -

But we also hold that it would not be inequitable to hold

petitioner liable for 1984 and 1985 deficiencies in taxes related

to the Hitech checks.

     To reflect the foregoing,



                                      Decision will be entered

                                 under Rule 155.
