Slip opinions decided 1999 — Tax Court Memorandum

J is a corporation engaged in furniture delivery services. F is J's sole shareholder and president. Held: The period of assessment is unlimited because J and F filed fraudulent tax returns. Sec. 6501(c)(1), I.R.C. 2. HELD, FURTHER, the diverted funds were constructive dividends and taxable to F in the manner provided by secs. 301(c) and 316(a), I.R.C. 3. HELD, FURTHER, the diverted funds were properly includable in J's income.

HELD: P has failed to establish the existence, amount, or worthlessness in the years at issue of claimed nonbusiness and business bad debts. Held: P has failed to establish the existence, amount, or worthlessness in the years at issue of claimed nonbusiness and business bad debts. P has also failed to substantiate itemized deductions disallowed by R. P is liable for accuracy-related penalties for negligence under sec. 6662, I.R.C.

HELD: Compensation paid by P to its sole shareholder/CEO was reasonable. Held: Compensation paid by P to its sole shareholder/CEO was reasonable.

P received advance commissions on insurance written by him. The advance commissions were repayable on demand, and bore interest, and repayment was secured by earned commissioners. Held: Ps have proven the amount of advance commissions. HELD, FURTHER, the advance commissions were received as loans and are not gross income.

S, a gas utility company, collected funds from its customers which were earmarked for legislatively mandated energy conservation programs. Held: S' gross income includes the funds. HELD, FURTHER, S must capitalize the expenditures, less the amount paid as subsidies, which is currently deductible.

On remand from the Court of Appeals for the Ninth Circuit. Held: the receipts constitute royalties within the meaning of sec. 512(b)(2).

S is a family-owned corporation, and D's estate (E) includes 46,020 shares of S's class A stock. Held: The fair market value of E's stock on the applicable valuation date was $ 56.50 per share.

Ps filed a document purporting to be their 1995 Federal    income tax return; Ps' so-called return was filed on plain    sheets of paper. The IRS did not process the document as a    return because it did not include sufficient information. R    determined an income tax deficiency, an addition to tax under    sec. 6651(a)(1), I.R.C., and an accuracy-related penalty under    sec. 6662(a), I.R.C., for the 1995 taxable year. Ps have    conceded the deficiency and addition to tax under sec.    6651(a)(1), I.R.C., as determined by R. Held: Ps' putative    return of tax not filed on the proper form prescribed by the    Secretary, and carrying a disclaimer that it is not intended in    any way as a self-assessment of tax, is not a Federal income tax    return. See Commissioner v. Lane-Wells Co., 321 U.S. 219, 223, 88 L. Ed. 684, 64 S. Ct. 511    (1944).      Held, further, Ps are not liable for the accuracy- related    penalty under sec. 6662(a), I.R.C., for their 1995 taxable year    because they did not file a Federal income tax return for that    year. See sec. 6664(b), I.R.C.

Respondent recharacterized the income petitioner husband received from the rental of property to his wholly owned C corporation from passive to… Held: Pursuant to sec. 469(l), I.R.C., the Secretary properly promulgated the attribution and self-rented property rules. The self-rented property rule (by virtue of the attribution rule) is valid insofar as it recharacterizes rental income received by a controlling shareholder from a C corporation from passive to nonpassive.

Ps deducted losses sustained in their cattle-ranching and aircraft-rental operations. Held: On the facts, the cattle-ranching and aircraft-rental activities were not engaged in with a profit objective, and Ps are not entitled to deduct the losses therefrom. HELD, FURTHER, Ps failed to establish that they exercised reasonable care in deducting such losses and are thus liable for accuracy-related penalties based on negligence.

Following disallowance by R of amounts deducted as business expenses, P entered into a stipulation agreeing to an additional tax of $ 17,823 for the taxable year 1995. Held: On the facts, reliance upon a professional tax adviser does not constitute reasonable cause within the meaning of sec. 6651(a), I.R.C., for purposes of relieving P of liability for the delinquency addition to tax.

R disallowed deductions claimed on P's 1994 income tax    return and determined the civil fraud penalty pursuant to sec.    6663, I.R.C. In substantiation of these deductions, P offered    two documents which evidence at trial indicated were not    legitimate.      HELD: On the facts, P failed to establish her entitlement    to the deductions claimed and is therefore liable for the    deficiency determined by respondent.       HELD, FURTHER, P is liable for the sec. 6663, I.R.C.,    civil fraud penalty.