Slip opinions decided 1997 — Tax Court Memorandum

Ps operate retail department stores and clubs. Ps' accounting records set forth each store/club's inventory, and Ps count each store/club's inventory during the year to verify the records' accuracy. In order to reflect the "shrinkage" of inventory at yearend caused by theft, breakage, and clerical errors occurring after a count, Ps estimate this shrinkage based on gross sales. Ps' inclusion of the estimates in costs of goods sold reduces their gross income. Held: Ps' method of estimating inventory shrinkage at yearend is permissible because the method: (1) Conforms as nearly as may be to the best accounting practice in the trade or business and (2) clearly reflects income.

P operated supermarkets and convenience stores. P used "cycle counting" to conduct physical inventories of merchandise throughout the year. P maintained book inventory records from which inventory closing balances could be determined at year's end. P estimated losses from shrinkage factors (e.g., theft and errors in billing) occurring from the time of the last physical count of inventory to year's end and made an accrual of the estimate. P calculated shrinkage accruals as a percentage of gross sales. Held: P's systems of maintaining book inventories (including the making of shrinkage accruals) conform to the best accounting practice and clearly reflect income. They are, thus, sound within the meaning of sec. 1.471-2(d), Income Tax Regs.

P received a lump-sum distribution from two accounts under a qualified pension plan in 1991. Held: The divorce decree rendered after the lump-sum distribution to P does not meet the requirements of sec. 414(p), I.R.C., and is thus not a QDRO. Therefore, P is liable for tax on the entire lump-sum distribution.

Held: Ps' motion for administrative and litigation costs will be denied.

D, a married resident of Texas, bought certain life insurance policies that were community property. Held: one-half the value of the policies may not be excluded from D's gross estate for Federal estate tax purposes.

S, a subsidiary of P, purchased certain of the assets of a reconstructed hydroelectric power facility and immediately leased those assets back to the seller. Held: P has proven that the fair market value of the listed assets acquired by S, which did not include going concern value or goodwill, equaled or exceeded the price paid for them; therefore, S need not allocate any portion of that purchase price to goodwill or going concern value.

P instituted this proceeding claiming that his wages and nonemployee compensation are not income subject to tax. Held: R's determinations of income tax deficiencies and additions to the tax under secs. 6651(a) and 6654(a), I.R.C., are sustained. Held, further, on the Court's own motion P must pay a penalty to the United States in the amount of $ 1,000 since P's position in this proceeding is frivolous and groundless. Sec. 6673(a), I.R.C.

P, a qualified heir, received farm property subject to a special use valuation election pursuant to sec. 2032A, I.R.C. P farmed the property… Held: As a result of the cash leases, P ceased to use the property for its qualified use and is liable for additional Federal estate tax imposed by sec. 2032A(c), I.R.C.Williamson v. Commissioner, 93 T.C. 242 (1989), affd. 974 F.2d 1525 (9th Cir. 1992) and Martin v. Commissioner, 84 T.C. 620 (1985), affd. 783 F.2d 81 (7th Cir. 1986),…

P signed a power of attorney (POA) in 1988 naming B as his representative. In April 1991, P was totally incapacitated by a stroke. Held: The Form 872 signed in 1992 is ineffective to extend the SPL, because the POA under which B acted was revoked by P's incapacity and R had actual knowledge of the incapacity. Held, further, the SPL for 1984, 1985, and 1986 had expired when the notice was mailed, unless the underpayments of tax for those years were due to fraud.

P filed a Motion for Reconsideration of our Opinion reported as Lucky Stores, Inc., & Subs. v. Commissioner, 107 T.C. 1 (1996) on the grounds that we failed to take into consideration R's… Held: P's Motion for Reconsideration and Motions Requesting Judicial Notice will be denied.

P, an individual, owned rental real estate, which produced passive losses under sec. 469, I.R.C. P was also a partner in partnership A, which had nonpassive losses from a… Held: P could not combine the rental operation and nonrental operation into a single undertaking, and thus could not deduct passive losses as active losses, because the resultant undertaking would not pass the common location/ownership test of sec. 1.469-4T(c)(2), Temporary Income Tax Regs., 54 Fed.

Corp. was organized in 1987 with $ 900 in capital contributions, of which amount H contributed $ 300. Shortly thereafter, H advanced an additional $ 74,700 to Corp. and received in return a fully enforceable, unsecured note with a set monthly repayment schedule. No payment of principal or interest was ever made on the note by Corp. In 1989, Ps deducted the entire amount of the advance as a business bad debt under sec. 166, I.R.C. R disallowed the deduction completely, determining that the advance was a capital contribution and not a loan. On the facts, Held: The advance H made to Corp. constituted a contribution to capital and, therefore, Ps are not entitled to claim a bad debt deduction under sec. 166, I.R.C.Held, further, R's determination that Ps are liable for the accuracy-related penalty under sec. 6662(a), I.R.C., for a substantial understatement of tax is sustained.

P, a corporation, filed a consolidated tax return with its affiliated companies, including AG, a controlled foreign corporation for… Held: Interest expense is apportioned under the asset method by prorating the assets between the statutory and residual groupings based on the income they produce; (2) swap losses are apportioned in the same manner as interest expense; (3) Swiss capital tax is apportioned in the same manner as interest expense; (4) sec. 1.861-8 (e)(2)(v),…

During 1987, petitioner (P) was a business manager at two automobile dealerships. P claimed various employee business expense deductions, primarily for business meals. 1. Held: P is not entitled to deductions for business meals expenses because he has not satisfied the requirements of sec. 274, I.R.C. 1986. 2.

P owned stock in Corp. A. Corp. A operated numerous restaurants under a franchise arrangement with Corp. B. P sued both Corp. A and Corp. B, alleging two contract claims and a tort claim. Corp. B and P entered into a settlement agreement, whereby Corp. B purchased P's stock in Corp. A and, in return, P released his claims against Corp. B. P used some of the proceeds received as a result of the agreement with Corp. B to settle a loan made to P by Bank X. The loan balance consisted of both principal and accrued interest. P also wrote off an investment in Company Y. Held: $ 295,461 of the proceeds P received from Corp. B is excludable under sec. 104(a)(2). Held, further: Except for $ 219,000 of the fees that P paid to his lawyers, P failed to substantiate his additions to basis in Corp. A stock. Held, further: P failed to substantiate a part of his basis in Company Y. Held, further: R's calculation of the interest portion on the loan from Bank X is sustained. Held, further: P failed to substantiate $ 19,975 of attorney's fees. Held, further: P is not liable for the accuracy-related penalty under sec. 6662(a).

In 1988, C reported a $ 105 million capital gain. In 1989, M, an investment banking firm, approached C with an elaborate scheme to shelter that gain from Federal income tax. Held: The Court will disregard the CINS transaction for Federal income tax purposes because it lacked economic substance.

R issued notices of deficiency dated Sept. 28, 1992, for Ps' 1985 year. Ps filed timely petitions asserting the period of limitations had expired. Held: The mitigation provisions do not permit an adjustment to Ps' 1985 year, because on the date the notices of deficiency for 1985 were issued a relevant determination had not occurred within the 1-year period ending on that date.

During 1981 and 1982, P was a loan officer at Bank of New York. P accepted money from the Bank's clients in order to approve or modify loans. Held: P's 1981 and 1982 gross income includes the payments he received from clients in those years.

In 1993, R issued a notice of deficiency for Ps' 1989 taxable year. Held: Petitioners' motion for leave will be denied.

P created two trusts. P and O then formed a partnership (NAA) to perform nurse anesthetic services, listing O and one of the trusts, T, as partners. Held: P is taxed on any income transferred to the trust. Held, further, P is liable for additions to tax under sec. 6651(a), I.R.C. Held, further, P is liable for additions to tax under sec. 6654(a), I.R.C.

P underreported income from his rental and insurance businesses during 1984, 1985, 1986, and 1987. Held: The currency deposits to P's bank account for his 1984 and 1985 taxable years are taxable deposits. Held, further, P is liable for additions to tax for fraud under sec. 6653(b)(1)and ( 2), I.R.C., for 1984 and 1985 and under sec. 6653(b)(1)(A) and (B), I.R.C., for 1986 and 1987.

At issue is the valuation of a 25-percent undivided interest in timberland that was the subject of gifts made by donor. Held: Value of interest determined by discounting partition award to present value.

P, an asphalt paving contractor, did not account for inventories and kept its books and filed its returns on the cash receipts and disbursements method of accounting. Held: Emulsified asphalt, which becomes useless in less than 5 hours, is not merchandise held for sale by P. Held, further, P has no inventories; thus, sec. 1.471-1, Income Tax Regs., does not apply to P for the taxable years at issue.

1. Held: Gain recognized because P failed to prove sec. 1033, I.R.C., involuntary conversion of property. 2. Held: Gain recognized because P failed to prove sec. 1033, I.R.C., involuntary conversion of property. 2. Held, further, deductions denied for miscellaneous employee business expenses and for moving expenses because P failed to substantiate such expenditures. 3.

P operated department stores. P used cycle counting to conduct physical inventories of merchandise throughout the year. Held: P's systems of maintaining book inventories do not clearly reflect income. They are, thus, not sound within the meaning of sec. 1.471-2(d), Income Tax Regs.

ROBERT D. AND PATRICIA K. KALIBAN, ET AL., n1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 4253-89, 10802-89, 10803-89 27659-89, 27660-89. Donald A. Glasel and Frances Ferrito Regan, for respondent in docket Nos. 4252-89 and 27659-89. Wendy Sands and Frances Ferrito Regan, for respondent in docket No. 4253-89. Mitchell B. Hausman and Frances Ferrito Regan, for respondent in docket No. 10802-89. Jennifer J. Kohler and Frances Ferrito Regan, for respondent in docket Nos. 10803-89 and 27660-89. CONTENTS MEMORANDUM FINDINGS OF FACT AND OPINION OPINION OF THE SPECIAL TRIAL JUDGE FINDINGS OF FACT A. The Plastics Recycling Transactions B. The Partnerships C. David Alter and Martin Feinstein D. Petitioners and Their Introduction to the Partnership Transactions 1. Robert and Patricia Kaliban 2. Steve and Lispet Roland 3. Karl and Marjorie Weber 4. Lionel and Betty Zimmer OPINION A. Section 6653(a) -- Negligence 1. The So-Called Oil Crisis 2. Petitioners' Purported Reliance on Advisers 3. Miscellaneous 4. Conclusion as to Negligence B. Section 6659 -- Valuation Overstatement 1. The Grounds for Petitioners' Underpayments 2. Concession of the Deficiencies 3. Section 6659(e) C. Petitioners' Motions For Leave To File Motion For Decision Ordering Relief From the Negligence Penalty and the Penalty Rate of Interest and To File Supporting Memorandum of Law

Russell D. Pinkerton for respondent.

747 HENMORE AVE., INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 10512-89 Individual petitioner (G) owned corporate petitioner (K). G caused K to write checks drawn against K's account (1) to pay for investments and personal expenses of G, or (2) that were payable to cash or other. K filed tax returns for 1980, 1981, and 1982, but G did not. R used the bank deposits method and an analysis of checks disbursed in determining deficiencies against K. 1. HELD: G and K are liable for additions to tax for civil fraud for 1980, 1981, and 1982. Secs. 6653(b) and 6653(b)(1), I.R.C. 1954. 2. HELD, FURTHER, G and K are liable for additional additions to tax for 1982 based on the portion of the deficiencies attributable to fraud; amounts redetermined. Sec. 6653(b)(2) I.R.C. 1954. 3. HELD, FURTHER, amounts of deficiencies redetermined.

Don C. Montgomery and Judy Montgomery, pro sese.

R determined adjustments to certain of SLR's partnership items for 1990. Held: The rollback tax is a specifically enumerated real property tax within the meaning of sec. 164(a) (1), I.R.C., and therefore must be deducted rather than used to offset the amount realized on the disposition of real property.

H filed a lawsuit against his former employer alleging breach of contract, fraud, and the tort of outrageous conduct. Held: None of the proceeds are excludable from Ps' gross income under sec. 104(a)(2), I.R.C., because they were not received on account of a personal injury. 2. Held, further, Ps attorney's fees and costs are deductible as a miscellaneous itemized deduction to which the provisions of secs. 67 and 68, I.R.C., are applicable.

On the facts, Held: Ps have failed to sustain their burden of proving that H did not materially participate in the activity of CDI during 1990 and 1991 within the meaning of sec. 469(h) (1), I.R.C.,… Held: Ps have failed to sustain their burden of proving that H did not materially participate in the activity of CDI during 1990 and 1991 within the meaning of sec. 469(h) (1), I.R.C., and sec. 1.469-5T(a) (1), Temporary Income Tax Regs., 53 Fed.

On the facts, Held: R's disallowance of P's 1993 Schedule C returns and allowances in the amount of $ 45,243 sustained; P's self-employment tax and related deductions redetermined; and R's… Held: R's disallowance of P's 1993 Schedule C returns and allowances in the amount of $ 45,243 sustained; P's self-employment tax and related deductions redetermined; and R's determination that there is an accuracy-related penalty due under sec. 6662(a), I.R.C., sustained.

1. Held: P is taxable on a pension plan distribution because he failed to roll over that distribution within the 60-day period prescribed by sec. 402(a)(5)(C), I.R.C.Held further, P is liable for a… Held: P is taxable on a pension plan distribution because he failed to roll over that distribution within the 60-day period prescribed by sec. 402(a)(5)(C), I.R.C.Held further, P is liable for a 10-percent additional tax under sec. 72(t), I.R.C., on that distribution. 2.

Ps, shareholders of a closely held corporation, received certain advances of funds from the corporation in 1987 and 1988 which they used for personal and investment expenses. The loans were not evidenced by a note or security agreement, and no interest rate was agreed to or set by the parties during these years. Ps also made certain repayments on the loans in 1987 and 1988 which were reflected as reductions of principal on the financial ledgers of both Ps and the corporation. R determined that Ps were the recipients of below-market loans from the corporation and, among other things, adjusted their income to reflect distributions pursuant to sec. 7872, I.R.C.Held: Ps have dividend income in an amount equal to the forgone interest from the below-market demand loans. KTA-Tator, Inc. v. Commissioner, 108 T.C. 100, 106-107 (1997), applied. Held, further, additions to tax under sec. 6661, I.R.C., are sustained, subject to recomputation under Rule 155.

After requesting a legal separation from his wife, but before a Stipulation and Order to Show Cause was filed on May 6, 1992, in State court, P made certain payments to, or on behalf of, his wife in the nature of support. P deducted these payments, together with payments made after May 6, 1992, from his gross income as alimony pursuant to sec. 215, I.R.C., on his Federal income tax return for 1992. R limited P's alimony deduction to those payments made after May 6, 1992. On the facts, Held: No alimony deduction is allowed under sec. 215, I.R.C., for payments made by petitioner to his wife prior to May 6, 1992, since these payments did not stem from a written separation agreement within the ambit of sec. 71(b)(2)(B), I.R.C.

R determined deficiencies in and additions to tax on account of petitioner's omissions of income from illegal drug activities. 1. Held: Petitioner failed to prove that the source of certain expenditures was other than illegal drug activities. 2. Held, further, petitioner substantially understated his income tax liability for 2 of the years in question. 3. Held, further, respondent proved fraud for each of the years in question. 4. Held, further, petitioner is liable for self-employment taxes.

Petitioners (Ps) claimed on the Schedule C of their 1983 tax return a $ 16.3 million theft/casualty loss. Held: Ps did not have a settlement agreement with either the Department of Justice or the Internal Revenue Service. 2. Held, further, Ps are not entitled to loss carryover deductions on account of theft, casualty, or trade or business; respondent concedes Ps are entitled to capital loss carryover deductions. 3.

G owned all of L's stock. L's primary asset was a sawmill, which was operating at a loss, and L desired to find a partner with whom to build a pulp mill to enhance the sawmill's productivity. In 1981, G and N agreed that G would recapitalize L, and that L would build the pulp mill after N transferred to L funds in exchange for an ownership interest therein.

H and W (Ps) filed their 1988, 1989, and 1990 Federal income tax returns on Nov. 6, 1992, reporting large amounts of taxable income. Held: The period of limitations for assessment of tax did not expire before R issued the notice of deficiency. Held, further, Ps are liable for the deficiency determined by R for 1989.

R determined a deficiency in tax and a penalty because P omitted from gross income an amount received pursuant to a series of agreements relating to a partnership that had prevailed in a lawsuit and in which P was a partner. P claimed that he received the payment in consideration for giving up his claim for damages on account of personal injuries. 1. HELD: P has failed to prove that the payment was in settlement of a claim for damages on account of personal injuries. 2. HELD, FURTHER, P is liable for the penalty under sec. 6662(a).

Henry E. O'Neill, for respondent.

Debra Lynn Reale and S. Katy Lin, for respondent.

CALIFORNIA HOTEL & CASINO AND SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 3434-95 Ps provide free meals to their employees in private… Held: Ps' deduction is limited by sec. 274(n)(1), I.R.C.; the de minimis fringe benefit exception of sec. 274(n)(2)(B), I.R.C., is inapplicable under the facts herein because Ps do not provide the meals to each of substantially all of their employees for a substantial noncompensatory business reason.

Loren B. Mark, for respondent.

John T. Lortie, for respondent.

James P. Thurston, for respondent.

M and THEI were partners in IHCL. IHCL was formed in 1981 to hold interests in both PGL and PLH, which were partnerships formed for the purpose of constructing, owning, and managing separate hotel towers of a resort complex located adjacent to the then-unbuilt San Diego Convention Center. IHCL's partnership agreement provided that upon liquidation, the liquidation proceeds would be distributed only to those partners having positive capital accounts. IHCL's partnership agreement did not require the partners to restore any deficits in their capital accounts upon liquidation of the partnership. In 1985, D agreed to invest $<>19.8 million in IHCL in exchange for a 15-percent interest in IHCL, together with a special allocation of 99 percent of IHCL's income and losses. Upon D's entry as a partner in IHCL, M withdrew as a partner of IHCL, and THEI's interest in IHCL was reduced. D encountered financial difficulties. In 1987, the special allocation of gains and losses to D was terminated. Thereafter, the gains and losses of IHCL were allocated to THEI and D pro rata in accordance with their partnership interests. Following this allocation, a substantial deficit balance existed in THEI's partnership capital account. On June 20, 1991, M purchased D's interest in IHCL and thereafter succeeded to D's then-positive partnership capital account of $ 14.8 million. At that time, THEI had a negative $ 5.9 million partnership capital account. Upon M's reentry into IHCL, IHCL's partnership agreement was amended to provide that IHCL's income would be allocated first to partners having negative capital account balances and then to the partners pro rata. No amendment was made to IHCL's partnership agreement with respect to the allocation of losses, distributions of cash-flow, or liquidating distributions. IHCL's 1991 information return reported an allocation of 99 percent of IHCL's income to D up to June 20, 1991, and thereafter an allocation of 100 percent to THEI. Respondent determined that 99 percent of IHCL's income after June 20, 1991, should be reallocated to M as D's successor in IHCL. HELD: Respondent's reallocation of 99 percent of IHCL's income to M for the period in issue is sustained. See sec. 704(b), I.R.C.

MEMORANDUM FINDINGS OF FACT AND OPINION

ROBERT D. GROSSMAN, JR., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent / *This opinion supplements our previously filed Memorandum Findings of Fact and Opinion in Grossman v. Commissioner, T.C. Memo. 1996-452, filed Oct. 7, 1996. / Docket No. 14364-91 Petitioner (P) claims that two of the concessions that the Commissioner made in P's wife's (W's) dockets are applicable to P's dockets for purposes of the Rule 155 computations in his dockets. HELD: The concessions that the Commissioner made in W's dockets are not applicable to P's dockets. Stephen L. Braga, Eric F. Horvitz, and Miriam L. Fisher, 1Miriam L. Fisher was given leave to withdraw as counsel in these dockets after petitioner's first memorandum of law was filed and did not have any responsibility for petitioner's final memorandum of law. for petitioner. John C. McDougal, for respondent.

Guy A. Bracuti and John C. Galluzzo, Jr., for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

Gary L. Bloom, for respondent.

Roslyn D. Grand, for respondent.

Decedent (D), who died in 1988, bequeathed his spouse (P) minimal assets from a net estate of $<>3,361,683. In 1989, P elected against D's will to take the Florida elective share of 30 percent of the net estate, or $<>1,008,504. The estate reported 1989 distributable net income (DNI) of $<>707,095, including $<>176,432 of capital gains that D's personal representative treated as estate income, and $<>377,753 of distributions to the estate from D's individual retirement accounts. Pursuant to order of the Florida Probate Court, D's personal representative paid P the elective share in 1989, but made no distributions to the residuary beneficiaries until 1990. The personal representative claimed a distribution deduction of $<>707,095 for 1989 under sec. 661(a), I.R.C., on the ground that all the estate's DNI had been included in the payments to P in satisfaction of her elective share. P did not include in her gross income any part of the elective share. HELD: Payments to P in satisfaction of her Florida elective share are not distributions of income or amounts properly paid or credited or required to be distributed to beneficiaries within the meaning of secs. 661(a), 662(a), I.R.C., and sec. 1.661(a)-2(e), Income Tax Regs. P's Florida elective share is excluded from her gross income.

On the facts, HELD: R has proven, by a preponderance of the evidence, that P improperly omitted a substantial amount of gross income… Held: R has proven, by a preponderance of the evidence, that P improperly omitted a substantial amount of gross income from his Federal tax returns for 1989 and 1990 within the meaning of sec. 6501(e)(1)(A), I.R.C., such that R is not barred from assessing deficiencies for those years by the 3- year statute of limitations of sec. 6501(a),…

P worked as an ordained minister for the United Methodist Church. HELD: Among other things, for Federal income tax purposes, P is to be treated as an employee of the United Methodist Church. Held: Among other things, for Federal income tax purposes, P is to be treated as an employee of the United Methodist Church.

On the facts, HELD: (1) Ps have not established that they are entitled to deduct on their 1987 Federal income tax return ordinary and necessary business expenses in excess of the amount allowed by R;… Held: Ps have not established that they are entitled to deduct on their 1987 Federal income tax return ordinary and necessary business expenses in excess of the amount allowed by R; and (2) petitioners are liable for the late filing addition to tax under sec. 6651(a)(1), I.R.C.

P contributed 236 films to a charitable organization. In accord with an appraisal, P placed a $<>236,000 value on the films. Held: In the context of this case, P is not seeking to go behind the notice of deficiency and is entitled to discover and obtain a copy of Y's report.

Marshall R. Jones, for respondent.

James E. Schacht, for respondent.

Elizabeth P. Flores, for respondent.

Ladd C. Brown, for respondent.

Reginald R. Corlew, for respondent.

R moved for partial summary judgment on an issue informally raised by P during an IRS Appeals Office conference as to whether the period of limitations for assessment had expired as a result of R's alleged failure to honor an election by P's partnership for treatment under the unified audit provisions of secs. 6221 through 6233, I.R.C. R also moved to impose sanctions under Rule 104(c), Tax Court Rules of Practice and Procedure, including dismissal, for P's ongoing noncompliance with a discovery order of the Court. P filed oppositions to both of R's motions. 1. HELD: R's motion for partial summary judgment granted. Rule 121(b), Tax Court Rules of Practice and Procedure. 2. HELD, FURTHER, R's motion to impose sanctions granted; this case will be dismissed; and decision will be entered against P for deficiencies and accuracy-related penalties under sec. 6662(a), I.R.C., in the amounts determined by R for the taxable years 1992 and 1993. Rule 104(c)(3), Tax Court Rules of Practice and Procedure.

HELD: Petitioner did not adequately disclose on his 1988 Federal income tax return relevant facts regarding the tax treatment of a claimed business interest expense deduction. Held: Petitioner did not adequately disclose on his 1988 Federal income tax return relevant facts regarding the tax treatment of a claimed business interest expense deduction. Petitioner is liable for an addition to tax under sec. 6661, I.R.C.

HELD: P failed to prove that any portion of a payment he received from his former employer after being laid off constitutes damages excludable under sec. 104(a)(2), I.R.C. Held: P failed to prove that any portion of a payment he received from his former employer after being laid off constitutes damages excludable under sec. 104(a)(2), I.R.C.

Petitioner was incorporated in 1970 to raise funds for tax- exempt charitable organizations, primarily those benefiting underprivileged children. Petitioner received a favorable ruling letter in 1971. Held: z and P were insiders for purposes of the inurement provisions of sec. 501(c)(3), I.R.C. 1954 and 1986. 2. HELD, FURTHER, Z's and P's theft of bingo proceeds was not an inurement of petitioner's net earnings. 3.