Slip opinions decided 1996 — Tax Court Memorandum

On the facts, Held: respondent's application of bank deposits method to determine petitioner's gross income in the absence of books and… Held: respondent's application of bank deposits method to determine petitioner's gross income in the absence of books and records approved, with one modification; held, further, miscellaneous deductions redetermined; held, further, petitioner liable for additions to tax under sec. 6651(a)(1), I.R.C., for 1988, 1989, and 1990; the addition…

Petitioner (P) was involved in a number of businesses, most of which were incorporated. Held: The first mailing of the notice of deficiency was to P's last known address, and was timely. Secs. 6212(b)(1), 6501(a), I.R.C. 1986. 2. Held, further, P had unreported Schedule C gross receipts for 1982; amount determined. 3. Held, further, P had unreported interest income for 1984-1986; amounts determined. 4.

Held: petitioners' rental losses redetermined; held, further, gain from sale of real property redetermined; held, further, petitioners are liable for additions to… Held: petitioners' rental losses redetermined; held, further, gain from sale of real property redetermined; held, further, petitioners are liable for additions to tax under sec. 6653(a), I.R.C., for 1988, under sec. 6661, I.R.C., for 1988, and for an accuracy-related penalty under sec. 6662(a), I.R.C., for 1989.

H invested $ 100,000 in an arrangement, as a result of which a $ 1,600,000 Schedule C deduction was claimed on the 1981 tax return. Held: The 1981 grossly erroneous item (the $ 1,600,000 deduction) is an item of H. Sec. 6013(e)(1)(B), I.R.C. 1954. 2. Held, further, when the tax return was signed, W did not know, and had no reason to know, that there was a substantial understatement of tax for 1981. Sec. 6013(e)(1)(C), I.R.C. 1954. 3.

P guaranteed the obligation to M, his wholly owned corporation, under M's contracts with I. Pursuant to these contracts, I paid advance commissions to M and its agents for insurance policies that… Held: P did not realize cancellation of debt income on account of the release.

Held: Compensation paid by P to two of its officers/shareholders is reasonable. Held: Compensation paid by P to two of its officers/shareholders is reasonable. Both officers had the appropriate education and employment background for their positions with P, worked long hours for the company and its predecessor, and helped increase its gross sales in a volatile market.

In 1985, 1986, and 1987, P engaged in various tax protester activities, filed false Forms W-4, and did not file tax returns. Held: P is liable for the addition to tax for fraud for 1985, 1986, and 1987.

Held: With respect to P's 1990 taxable year, the Court will enter a decision in accordance with R's computation. Held: With respect to P's 1990 taxable year, the Court will enter a decision in accordance with R's computation.

P, engaged in the retail pharmacy and restaurant business, made substantial improvements to certain leased premises. Held: P's leasehold improvements allocated between Building Services and Distributive Trades and Services. Walgreen Co. & Subs. v. Commissioner, 68 F.3d 1006 (7th Cir. 1995), revg. and remanding 103 T.C. 582 (1994), applied.

Petitioner husband (P) was a traveling sales representative in 1989 and 1990 for a company that manufactured and distributed men's clothing (T). T did not control, and did not have the right to control, the manner or means by which P solicited sales. P had a substantial investment in facilities and bore substantially all the expenses of his sales activities. P also bore the risk of loss from his sales activities. P and T had a permanent working relationship, although terminable at the will of either party. P received employee-type benefits from T. Held: P was an independent contractor and was not an employee in 1989 and 1990. Sec. 62(a)(1), I.R.C. 1986.

On the facts, Held: P is not entitled to innocent spouse protection within the meaning of sec. 6013(e), I.R.C., as to the deficiency, additions, and penalties in income tax determined by the Commissioner for 1989.

[Code Sec. 512] Exempt organization: Solicitation program: Advertising activity: Unrelated business taxable income: Low-cost article exemption. -- Amounts generated by an exempt labor organization's solicitation program for its annual yearbook constituted income from the sale of advertising as a trade or business. Thus, the organization was liable for the unrelated business income tax.

P is an oil field contractor that sells oil pipes, leases equipment used in oil fields, and provides crews necessary to operate the leased equipment. Held: It was not an abuse of discretion for respondent to conclude that income from the yearend contracts was accruable for the years in which performance of the contracts was completed.

P moves for reconsideration, arguing that the Court erred because we: (1) Concluded that the subject shares were marketable, (2) failed to account properly for minority and marketability discounts,… Held: P's motion for reconsideration will be denied.

Ps operated the Maple Press and Acacia Press print shops during 1986 and 1987. Held: Ps must include in income the portion of Maple Press, Acacia Press, and Print Technology bank deposits which did not represent gross receipts reported, insufficient funds checks, bank debits, or interaccount transfers. 2. Held, further, R is not barred by the period of limitation from assessing tax for Ps' 1988 taxable year. 3.