Slip opinions decided 2003 — Tax Court Memorandum

P filed a timely petition for judicial review pursuant to sec. 6330(d)(1)(A), I.R.C., in response to a notice of determination by R to proceed with collection of assessed tax liabilities for 1996. Held: We do not look behind a notice of determination to decide whether the determination is valid for jurisdictional purposes. The notice of determination is valid on its face, and we have jurisdiction pursuant to sec. 6330(d)(1)(A)), I.R.C.

On Dec. 18, 2001, R mailed to Ps separate, identical Notices of Determination Concerning Collection Action(s) Under Sec. 6320 and/or 6330, I.R.C. In addition to the Dec. 18, 2001, date stamped next… Held: Because Ps failed to file their petition within 30 days of the notices of adverse determination, the petition is dismissed for lack of jurisdiction.

During 1990 and 1991, B, a domestic corporation, realized substantial capital gains from the sale of a number of its business units. Held: There is no meaningful distinction between the partnerships in these cases and the partnership determined to be a sham in ASA Investerings Pship. v. Commissioner, 340 U.S. App. D.C. 55, 201 F.3d 505 (D.C. Cir. 2000), affg. T.C. Memo. 1998-305.

P is engaged in the business of assembling, manufacturing, and selling furniture. Held: The change in MACRS classification of the items of equipment is excluded from the definition of a change in method of accounting, and an adjustment pursuant to sec. 481(a), I.R.C., is not required. Comm'r v. Brookshire Bros. Holding, Inc., 320 F.3d 507, 2003 U.S. App. LEXIS 1443 (5th Cir. 2003), affg. T.C. Memo. 2001-150, followed.

Held: R's determination that P is not entitled to a deduction for an abandonment loss in tax year ended 1995 is sustained. Held: R's determination that P is not entitled to a deduction for an abandonment loss in tax year ended 1995 is sustained. Held, further, R's determination that P is liable for an addition to tax under sec. 6651(a)(1), I.R.C., for tax year ended 1995 is sustained.

P was the common parent of an affiliated group that was    restructured in 1986. In 1986, pursuant to the restructuring    plan, P formed a subsidiary, I. Following the formation of I, P    became a subsidiary of I through an inversion. I then    distributed, pro rata to its shareholders in a spinoff, all the    issued and outstanding common shares of P, which continued to    hold all the shares of one pre-existing subsidiary of P.      Following the restructuring and spinoff, P filed a    consolidated Form 1120, U.S. Corporation Income Tax Return, for    a 27-week 1986 tax year claiming a consolidated net operating    loss (CNOL). P filed a Form 1139, Application for Tentative    Refund under sec. 6411, I.R.C., carrying back the CNOL to the    affiliated group's 1981 and 1984 tax years and requesting    tentative refunds for 1981 and 1984. I filed a consolidated U.S.    corporation income tax return for a 52-week 1986 tax year    claiming a CNOL. I also filed an application for tentative    refund for 1984. The Internal Revenue Service paid P and I the    respective tentative refunds for which they had applied.      Following an examination, R determined that P, rather than    I, was the continuing common parent of the prespinoff affiliated    group, revised P's income on the basis of a 52-week taxable    year, and determined that P did not sustain the CNOL claimed on    its 1986 return. R also revised I's income on the basis of a 27-    week short 1986 tax year. As a result of the foregoing    determinations, R determined that P was not entitled to the    tentative refunds paid to P for 1981 and 1984 and issued a    notice of deficiency to P to recover the tentative refunds.      After P filed the petition in the case at hand, R agreed to    treat I as the successor common parent of the prespinoff    affiliated group and issued a duplicate notice of deficiency to    I, in exchange for P entering into a stipulation of settled    issues. The stipulation of settled issues provides, in pertinent    part, that P will be liable to disgorge the tentative refunds it    was paid for 1981 and 1984 if those tentative refunds are held    not to be rebates as to I.    In Interlake Corp. v. Commissioner, 112 T.C. 103 (1999), the Court held the    tentative refunds paid to P were not rebates as to I.      P now contends the Court does not have jurisdiction to    enter decision on the stipulation of settled issues because the    tentative refunds P received are nonrebate refunds not taken    into account in determining a taxpayer's deficiency. According    to P, the tentative refunds are nonrebate refunds because P, as    the former common parent of the prespinoff group as conceded by    R, was not an "authorized recipient" of the tentative    refunds. P contends that when R paid the tentative refunds to P,    rather than I, R paid the wrong taxpayer, giving rise to    nonrebate refunds.      R contends that the tentative refunds are rebate refunds    over which the Court has jurisdiction and that the Court may    enter decision on the stipulation of settled issues. According    to R, nonrebate refunds are issued because of clerical or    computer errors and P has not identified any clerical or    computer error that caused R to pay the tentative refunds to P.    According to R, the tentative refunds were paid, after a limited    examination pursuant to sec. 6411(b), I.R.C., to the correct    taxpayer (P) because they were paid to P, the taxpayer who    applied for the tentative carryback adjustments on the basis of    the CNOL that P claimed it had incurred.      Held: The tentative refunds in issue are rebate    refunds as to P giving rise to deficiencies over which the Court    has jurisdiction. Sec. 6411(b), I.R.C. requires R to make only a    "limited examination" of an application for tentative    carryback adjustment and pay the tentative refund within 90    days. When R paid the tentative refunds to P, R had not finally    determined which affiliated group was the continuation of the    prespinoff affiliated group, and R was not required to make that    determination prior to paying the tentative refunds. The    tentative refunds were not paid because of any clerical or    computer error requiring nonrebate characterization. The    tentative refunds paid to P are recoverable through the    deficiency procedures. Accordingly, the Court has jurisdiction    to enter decision on the stipulation of settled issues and will    do so.

P did not file Federal income tax returns for 1995, 1996, and 1997. R issued a notice of deficiency in which he determined    that P received wages, nonemployee compensation, and    distributions from individual retirement plans for each of the    years. R based his determinations on third-party information    returns.      Held: Various third-party records that R offered in    support of his determinations are admissible evidence under   rules 803(6) and 902(11) of the Federal Rules of Evidence, which    allow the introduction of records of a regularly conducted    activity if, inter alia, the records are accompanied by a    written declaration of their custodian or other qualified    person.      Held, further, R's determinations of    unreported income are sustained.      Held, further, the additions to tax under   secs. 6651(a)(1) and 6654, I.R.C., are sustained.      Held, further, sec. 6651(a)(2), I.R.C.,    provides for an addition to tax where a taxpayer fails to pay    the amount shown as tax on any return. P did not file returns;    however, under sec. 6651(g), I.R.C., a return R prepares    pursuant to sec. 6020(b), I.R.C. , is considered a return for    purposes of the addition to tax under sec. 6651(a)(2), I.R.C.    Under sec. 7491(c), I.R.C., R has the burden to initially come    forward with evidence that it is appropriate to apply a penalty.    R failed to introduce evidence that returns showing an amount of    tax were prepared and subscribed in accordance with sec.   6020(b), I.R.C. See Millsap v. Commissioner, 91 T.C. 926    (1988); Phillips v. Commissioner, 86 T.C. 433 (1986),    affd. in part and revd. in part on other grounds 271 U.S. App. D.C. 265, 851 F.2d 1492    (D. C. Cir. 1988). Accordingly, the additions to tax under sec.   6651(a)(2), I.R.C., do not apply.

For 1993, P claimed a $ 2,816,540 capital loss on his sale of H    stock, believing that the loss in the value of the stock was    caused by the market. In 1997, P discovered that the loss in the    value of the stock was attributable to a theft. In 1997, P    claimed the $ 2,816,540 loss as a theft loss. At trial, P did not    establish that any portion of the capital loss claimed in 1993    remained for carryover after that year.    Held: P is not entitled to deduct in 1997 any of the loss    as a theft loss. In that P has failed to establish that any    portion of the capital loss remained for carryover after 1993, P    has not established that he had in 1997 any basis in the H stock    that would allow him to deduct for 1997 a theft loss with    respect to the H stock.

R determined deficiencies for W's 1992, 1993, 1994, 1995, and 1996 taxable years. R determined deficiencies for H's 1995 and 1996 years. Held: The payments H made to W meet the criteria of sec. 71(b)(1), I.R.C. Specifically, the payments were received by W and, pursuant to State law, would have terminated at W's death.

Ps timely filed their joint 1999 Federal income tax return wherein they failed to report a $ 30,000 payment P-W received from GM during 1999. That payment arose from a complaint that P- W had filed against GM and one of its employees for sexual harassment primarily in violation of the Elliott-Larsen Civil Rights Act, Mich. Comp. Law, secs. 37.2101-37.2804 (2001).

P and her ex-husband filed joint Federal income tax returns for 1986 and 1987 showing tax owed; they did not pay the taxes with the returns. Held: Since a portion of P's 1986 and 1987 tax liabilities remained unpaid as of July 22, 1998, P is entitled to a refund of the amount levied from her individual retirement account that was applied to her 1986 and 1987 tax liabilities. Washington v. Commissioner, 120 T.C. 114, 137 (2003), followed.

On Aug. 26, 1994, P filed a malicious prosecution lawsuit in Texas against a former business associate. Held: further, the payment P received pursuant to the malicious prosecution lawsuit is not excludable from gross income for 1998 under sec. 104, I.R.C. There is no evidence that any of the judgment award was received on account of a personal physical injury or physical sickness as required by sec. 104(a)(2), I.R.C., or for medical care…

J. A. Cragwall, Jr., Norbert F. Kugele, and Dean F. Pacific for petitioner.

During the course of R's initial review of Ps' offer in compromise based upon doubt as to liability for tax liabilities for 1991, 1992,… Held: further, in light of the intervening decision of the U.S. Supreme Court in Young v. United States, 535 U.S. 43, 152 L. Ed. 2d 79, 122 S. Ct. 1036 (2002), this case will be remanded to the Commissioner to permit Ps to reconsider their rejection of AO Martin's suggested installment agreement based in part on Ps' required concession of…

R determined that P was not entitled to (1) a dependency exemption for his daughter, (2) head of household status, and (3) a child tax credit. 1. Held: P was the custodial parent of his daughter and therefore may claim a dependency exemption for her. 2. Held, further, P is entitled to head of household status and the child tax credit.

R determined deficiencies for H's 1995 and 1996 taxable years. Held: R's position that the payments made by H to W were not deductible by H as alimony paid was substantially justified, within the meaning of sec. 7430(c)(4)(B)(i), I.R.C. H is not entitled to recover litigation costs.

P transferred limited partner interests in a family limited partnership (PT) to a family trust (T) pursuant to two separate transactions. Held: Fair market value of the transferred PT interests determined. See sec. 2512, I.R.C.

P filed a petition for judicial review pursuant to secs. 6320 and 6330, I. R. C., in response to a determination by R to leave in place a filed notice of Federal tax lien. Held : Because the record does not establish an abuse of discretion by R in rejecting P's offer in compromise, R's determination to proceed with collection action is sustained.

UNITED STATES TAX COURT

P reported taxable income of zero on his 1986 tax return, claiming he was not liable for tax due as no section of the Internal Revenue Code imposed a tax upon him. Held: R's motion for summary judgment is granted in full. Held, further, P is liable for a deficiency in the amount of $ 14,611 for 1986 based on his deemed admission.