Alhadi v. Comm'r

ANGELINA ALHADI, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T. C. Memo. 2016-74

Docket No. 17696-10.

UNITED STATES TAX COURT

April 21, 2016

Angelina Alhadi, pro se.

Jon D. Feldhammer, Thomas R. Thomas, Patricia Donahue, and Trent D. Usitalo, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HOLMES, Judge: Arthur Marsh worked hard and lived simply for decades, but when he became old and infirm he met Angelina Alhadi. In the two last years of his life, she somehow came to receive more than a million dollars from him. She claims that these transfers were nontaxable loans or gifts. The Commissioner says they were the proceeds of undue influence and elder abuse.

He wants her to pay tax on it. And he wants a fraud penalty too.

FINDINGS OF FACT

Arthur Marsh

Art Marsh was born in Montana a century ago, in late December 1915. His parents weren't too far removed from the first homesteaders, and he grew up on their farm in Plentywood as the fifth of seven children. His mother worked all day to do the laundry and prepare meals for her family, while his father tended to the land. Neither had much education, and their lives were recorded only in the short and simple annals of the poor. Many decades later he recalled that there hadn't been much room for tenderness. He never once heard his father tell his mother that he loved her, and he never once saw his parents show affection to each other. Art's education was cut short by the Depression, and it seemed he could look forward to the same hardscrabble life.

Then the war came. After Pearl Harbor, Arthur Marsh volunteered and became an enlisted man. He served the country honorably in a stateside posting, and after he was discharged he used his GI benefits to get a higher education.

Dr. Arthur Marsh moved to California. It was the Golden State's golden age. The City of Gilroy--the small town where he settled after the war--boomed with its state, doubling in size and then doubling again and doubling once more. Dr. Marsh opened an optometry practice there; and as Gilroy prospered and its middle class grew, he saw to the vision of three generations of families.

Dr. Marsh also set down deep roots in his town. He joined civic associations like the Rotary Club, grew thick connections in his profession, and was a faithful member of his local church. He loved the outdoors and would often take vacations throughout the West with his brothers and sisters and nieces and nephews. But he never married or had children of his own, and when he returned home, it was always to the same second-floor apartment on Carmel Street. It was only about 800 square feet, and Dr. Marsh furnished it modestly--a small table with a single chair on the right when one walked in, a living room connected to a kitchenette, and a single bedroom and bath. Dr. Marsh was by no means a miser, but the poverty of his childhood and youth had--as it did to so many of his generation--marked him for life and made him frugal. He rented his little apartment for $175 a month and got by largely on Social Security. But Dr. Marsh had been a good businessman, saving over $1 million before he retired in the '80s and investing it prudently well into retirement until it reached nearly $3 million. His friends sometimes joshed him about his habits, but he would just tell them that his wealth was insurance against having to leave his apartment of 50 years to end up in a nursing home.

But the silent artillery of time began to bracket him--his brothers and sisters died one after the other. Then, at the start of the new century, it hit him too. In 2000 he had a terrible fall and broke his hip, which sent him to the hospital and rehab. He began to use a walker and could not leave his second-story apartment without help. In 2007, when he was 91, things grew still worse. He couldn't drive a car, he couldn't go to the doctor, and he could no longer even prepare his own food. He suffered from incontinence, atrial fibrillation, congestive heart failure, hypertension, chronic back pain, arthritis, hearing loss in both ears, and deteriorating vision; then he suffered a stroke in the right frontal lobe of his brain.¹

His physician, Dr. George Green, diagnosed him with dementia and cognitive decline. These neurological problems showed themselves in Dr. Marsh's poor short-term memory, diminished long-term memory, inability to perform simple arithmetic, and persistent deficiencies in visuospatial analysis. These problems also made him vulnerable--it had become difficult for him toremember any information about his assets. Tests showed that he couldn't repeat five digits in sequence--let alone manage, analyze, or protect his seven-figure wealth. In January 2007 Dr. Marsh was admitted to St. Louise Regional Hospital for dehydration. His doctor knew he lived alone, knew he had no immediate family, and knew that his room was on the second floor. Even as he recovered a bit in the hospital, Dr. Marsh was told he couldn't go back without first arranging for in-home care.

Ms. Angelina Alhadi

Enter Ms. Angelina Alhadi. Ms. Alhadi is a native of the Philippines. She had immigrated in the '80s and told Dr. Marsh that she was born into a poor family and spent many years working in rice paddies. She claimed to have a bachelor's degree in medical technology in her native country. She found work here as a nurse's assistant, which is what she did first at St. Louise Hospital in 1998 and then at a nursing home called Covenant Care in 2003. When she wasn't working these two jobs she lived in a house in Hollister, California, that she coowned with her estranged husband and fellow immigrant, Yahya Hassan Alhadi. They had three children.

St. Louise knows the elderly can be vulnerable, and it has a written policy that bans its employees from soliciting work from patients. But never mind--Ms. Alhadi slipped a note to Dr. Marsh when she heard that he wouldn't be discharged without some in-home care ready for him.

Dr. Marsh accepted her offer, and she became his primary caregiver at the beginning of 2007. As part of her employment, Ms. Alhadi was supposed to prepare his meals, bathe him, make sure he took his drugs, provide basic nursing, shop for groceries, do his banking, drive him wherever he needed to go, help him to and from the bathroom, wash his clothes, clean his apartment, and provide some companionship for what had become a lonely old age.

Dr. Marsh hired Ms. Alhadi at an hourly rate, and she deposited her first paycheck from him in January 2007. She was paid according to their initial hourly arrangement through March. But then he agreed to pay her $6,000 a month for her services--even though the going rate was $3,750. He also gave her $1,000 a month for groceries--even though he needed only $400 a month to feed himself, and his minifridge could hold only about $50 worth of food. Ms. Alhadi began making deposit after deposit of cash into her bank account. Dr. Marsh's payments to Ms. Alhadi became irregular. On April 14 he wrote a check to her for $11,100; two days later he wrote her another for $100,000. He also bought her expensive electronic equipment.

Ms. Alhadi's lifestyle began to improve. In June 2007 she used money from Dr. Marsh to make a downpayment on a million-dollar home in Gilroy. After that, she began to pressure Dr. Marsh to help her with her mortgage payments. By the end of November 2007, he had written checks to her that added up to roughly $400,000--which she used to pay off her husband's $80,000 interest in their old home in Hollister and to remodel her new home in Gilroy. She spent $7,000 on furniture (purchased by Dr. Marsh for her); $8,000 on a new stone facade; $34,000 on landscaping work; and $73,000 on a new pool complete with a spa and a "therapeutic turtle mosaic."

This new pool almost became a problem for her. She told Dr. Marsh about her plans for it before work began. He said he didn't see how it made sense for her to build a pool until she had her house paid off. She ignored him. Then one day she presented Dr. Marsh with the $22,000 invoice for digging the hole for the pool. He roused himself to ask her: "Who the hell is going to pay for it?" She gave him a look as if to say: "Like who the hell do you think? I expect you to pay for it." Dr. Marsh then relented and later said that he felt he had to pay for the pool because the work was already done and he had to accommodate his caregiver.

Sometime that summer Ms. Alhadi told Dr. Marsh that she had won a cruise and that she wanted him to come with her. This was a ploy--she hadn't won anything, and he was afraid he'd be all alone at home without any assistance when she went. Dr. Marsh paid $25,000 for the whole thing. But though she took him along, Ms. Alhadi left him sitting alone in the sun while she went off with her own children. Later, he couldn't remember paying for the cruise and was surprised when he was shown the check he had written.

Dr. Marsh wasn't yet wholly isolated. He'd always been particularly close to one niece, Sheila Person. But Ms. Person lived in Seattle and had her own life there. As her uncle grew old, however, she made it a habit to call him every Sunday night to check in. After Ms. Alhadi entered his life, her success in reaching him became sporadic. By 2008 Ms. Person found it even more difficult to get in touch. Ms. Alhadi would answer the phone and tell her that her uncle was asleep or eating, and sometimes the phone would just ring and ring with no answer. By the end of the summer of 2008, neither Ms. Person nor Dr. Marsh's other family members were able to get through Ms. Alhadi to talk to Dr. Marsh at all.

Ms. Alhadi wed isolation to expressions of affection. She told Dr. Marsh four or five times a day that she loved him. She suggested getting married and invited him to come live with her. She would sit in front of him and cry about how she was financially struggling and worried about how she was going to survive and provide for her...