Pealii Loligo owned and operated three “House of Calamari” restaurants from 2005 through 2007. His wife, Cleopatra Decacera, assisted with the management of the restaurants. In May 2006, Ms. Decacera and Mr. Loligo purchased a $ 900,000 home. In relation to this home purchase, in 2004 and 2005 they signed mortgage loan applications indicating joint annual incomes of $ 235,000 and $ 321,000, respectively. On their 2004 joint federal income tax return, however, Ms. Decacera and Mr. Loligo reported that they earned no salaries and had net losses of $ 55,000; and on their 2005 joint tax return, they reported that Mr. Loligo earned a salary of $ 23,000, and that they had net losses of $ 77,000. During 2006– 2008, Ms. Decacera and Mr. Loligo paid approximately $ 70,000 for home furnishings, $ 30,000 for a swimming pool, and $ 40,000 for Ms. Decacera’s jewelry. In addition, they leased two Mercedes-Benz automobiles and took Ms. Decacera’s parents on vacations to Florida and Nevada.
In 2010, Ms. Decacera and Mr. Loligo were indicted and charged with filing false tax returns in 2004 and 2005. Mr. Loligo pled guilty, while Ms. Decacera signed a deferred prosecution agreement and admitted fil-ing false returns. The couple divorced in 2011, and in 2012 the IRS issued a deficiency notice for the 2004 and 2005 taxes. In September 2012, Ms. Decacera filed a petition in which she requested relief from joint and several liability for the income taxes. During January 2013, Mr. Loligo filed his “notice of intervention.” In July, an IRS appeals officer determined that Ms. Decacera did not qualify for innocent spouse relief under § 6015(f). After appropriate research, prepare (in good form) a research memorandum to the file. (See Chapter 2 for an illustration of the structure of a tax memo.) Then write a letter to Ms. Decacera explaining your findings. Her address is 4567 Whome Lane, Escondido, CA 92069.