Slip opinions decided 2004 — Tax Court Memorandum

Ps filed a motion for reconsideration, and an amended motion for reconsideration, of our opinion in . Goettee v. Comm'r, T.C. Memo 2003-43, 2003 Tax Ct. Held: Ps' amended motion for reconsideration is denied.

On a Motion for Reconsideration of Findings or Opinion and a Motion to Vacate or Revise a Decision, under, respectively, Rules 161 and 162, Tax Court Rules of Practice and Procedure, Ps… Held: Ps have failed to point to any substantial errors of fact or law or to present any newly discovered evidence that could not have been introduced previously even if Ps had exercised due diligence. Estate of Quick v. Commissioner, 110 T.C. 440 (1998), applied. Ps' Motions will be denied.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate. Held : Because there was no abuse of discretion by R in rejecting P's offer in compromise, R's determination to proceed with collection action is sustained.

Held: PH's debts to lender were discharged pursuant to discharge order in ch. 7 bankruptcy case, notwithstanding failure of lender to… Held: PH's debts to lender were discharged pursuant to discharge order in ch. 7 bankruptcy case, notwithstanding failure of lender to file proofs of claim; lender's foreclosure therefore gave rise to excludable discharge of indebtedness income, which reduced PH's tax attributes pursuant to sec. 108(b), I.R.C., in amount of unsatisfied debt…

Respondent determined deficiencies for petitioner's 1997, 1998, and 1999 taxable years based primarily on the disallowance of amounts claimed as business expense deductions. Held: Because petitioner failed to substantiate claimed deductions, he is liable for income tax deficiencies for 1997, 1998, and 1999. Held, further, petitioner is liable for sec. 6662(a), I.R.C., accuracy-related penalties with respect to the years in issue.

In Charlotte's Office Boutique, Inc. v. Commissioner, 121 T.C. 89 (2003), an employment tax case brought under sec. 7436(a), I.R.C., we held… Held: The Court has jurisdiction to redetermine the additions to tax at issue. Held, further, sec. 6651(a)(1), I.R.C., applies to P's failure to file the Forms 941 in that Form 941 is not an information return required to be filed under authority of pt. III but is a tax return required to be filed under authority of pt. II of subch.

Ps submitted multiple offers in compromise with respect to    their reported but unpaid Federal income tax liabilities for    1993 and 1994. R did not accept any of Ps' offers. Ps requested    abatement of interest under sec. 6404(e), I.R.C., on the ground    that R unreasonably delayed the processing of their offers in    compromise. R rejected Ps' request for interest abatement.      Held: Ps have failed to establish that any delay in    their payment of their 1993 and 1994 tax liabilities is    attributable to any action or inaction on the part of IRS    personnel in processing Ps' offers in compromise; therefore,    interest is not abatable under sec. 6404(e), I.R.C., and R did    not abuse his discretion in rejecting Ps' request for abatement.

P did not file Federal income tax returns for the years 1995-99 but remitted amounts with his filing extension requests for 3 of those years. Held: R is not estopped from asserting the deficiencies and additions to tax remaining at issue. 2. Held, further, P's remittances do not affect the amounts of the deficiencies at issue. 3.

In a collection proceeding, R issued a notice of determination with respect to P's 1995 through 1999 taxable years. After P petitioned this Court for review, R filed a motion for summary judgment. Held: R's motion for summary judgment will be granted as to 1995 and 1996. P received a notice of deficiency for those years and has not raised any material issues regarding an abuse of discretion by R. Held, further, R's motion for summary judgment will be denied as to 1997.

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 for the 1995, 1996,… Held: Because (1) P is not entitled to dispute his underlying tax liabilities for 1995 and 1996, (2) P does not dispute his underlying liability for 1999, and (3) the record does not establish any abuse of discretion by R, R's determination to proceed with collection action is sustained.

In 1996, P sold his stock in two S corporations to Parker for   $ 100,000. P received some of the $ 100,000 from Parker in 1995,    and the remainder in 1996, and transferred his stock to Parker    "effective" Dec. 31, 1995. P did not report the transaction on    his 1995 and 1996 tax returns. In 1998, P filed for bankruptcy. In 2000, the bankruptcy court entered a consent order which,    among other things, declared the stock transfer void ab initio.    On the same day, P executed a 6-percent interest promissory note    to Parker for $ 135,000 (the $ 100,000 for the corporations plus   $ 35,000 for some partnership interests P sold to Parker, also in    1996). By late 2003, P's total payments to Parker under the    promissory note amounted to little more than the interest on the    note.    1. Held: Under the claim of right doctrine, P is required    to include the $ 100,000 in income for 1996 as proceeds from the    sale of the S corporations stock.    2. Held, further, P's alternative contention, that    the $ 100,000 was excludable from income because it was a gift    from Parker, is rejected.

P and H filed a joint 1996 Federal income tax return on which H failed to report a taxable distribution from his individual retirement account (IRA). Held: because there is no tax deficiency, P is ineligible for relief under sec. 6015(b) and (c), I.R.C. 2. Held, further, under the facts and circumstances, R's denial of equitable relief under sec. 6015(f), I.R.C. , constitutes an abuse of discretion.

CAL INTERIORS INCORPORATED, ET AL., 1Cases of the following petitioners are consolidated herewith: S & C Dent Corporation, docket No. 8053-01; Gary and Dolores Beecher, docket No. 10870-01.                Petitioners                  v.          COMMISSIONER OF INTERNAL REVENUE,                Respondent

P timely petitioned this Court to review R's determination    to proceed with collection of assessments against P for 1982,    1987, and 1988. P alleges that extensions of the sec.    6502(a)(1), I.R.C., period of limitations on collection of those    assessments were improperly obtained and are, therefore,    invalid. P further alleges that the extension covering 1982 is    untimely as applied to a 1983 assessment for that year because    it was executed after the sec. 6502(a)(1), I.R.C., period of    limitations on collection with respect to that assessment had    expired.      1. Held: Pursuant to the presumption of official    regularity, the extensions are deemed to be validly obtained.      2. Held, further: The determination by R's    Appeals officer that the extension covering 1982 was timely with    respect to a 1983 assessment is supported by the evidence.      3. Held, further: R's determination does not    constitute an abuse of discretion and is sustained.

Petitioners included with their 1998 Federal income tax return a Schedule C, Profit or Loss From Business, for Shrike Cars. Held: Petitioners are not entitled to reduce their 1998 gross income by the $ 448,120 claimed net loss derived from the Shrike Cars enterprise. Held, further, petitioners are liable for the sec. 6651(a)(1), I.R.C., addition to tax for failure timely to file their 1998 income tax return.

D and J each owned 50 percent of the outstanding shares of B    corporation. In 1981, D, J, and B entered into a buy-sell    agreement restricting transfers of B's stock both during the    shareholders' lifetimes and at death. Lifetime transfers    required the consent of the other shareholders. At death, a    shareholder's estate was required to sell, and B was required to    buy, the shareholder's shares at a price set in the agreement.    The agreement further provided that it could be modified only by    the written consent of the parties to the agreement, which    consisted of D, J, and B. D and J subsequently transferred    shares to an employee stock ownership plan (ESOP) that B    established. J died, and B redeemed his shares pursuant to the    agreement, leaving D and the ESOP as the only remaining    shareholders, with D owning a controlling interest in B. D and B    were the only remaining parties to the agreement. In 1996, without obtaining the ESOP's consent, D and B modified    the agreement, changing the price and terms under which B would    redeem D's shares on D's death, but leaving unchanged the    provision requiring the consent of other shareholders for    lifetime transfers. The modified price was substantially below    the price that would have been payable pursuant to the    unmodified agreement. D died, and B redeemed his shares as set    forth in the modified agreement. D's estate reported the value    of the shares D held at death as equal to the price set forth in    the modified agreement.    Held: The modified agreement is disregarded for purposes    of determining the value of D's shares for Federal estate tax    purposes because D had the unilateral ability to modify the    agreement, rendering the agreement not binding during D's    lifetime, as required by sec. 20.2031-2(h), Estate Tax Regs.    Held, further: Sec. 2703, I.R.C., applies to the    modified agreement because the 1996 modification, which occurred    after the effective date of sec. 2703, I.R.C., was a    substantial modification.    Held, further: The modified agreement is also    disregarded under sec. 2703(a), I.R.C., because it fails to    satisfy sec. 2703(b)(3), I.R.C., which requires that the terms    of the agreement be comparable to similar arrangements entered    into by persons in an arm's-length transaction.    Held, further: Fair market value of D's shares    determined.

THE CONNELL BUSINESS COMPANY, ET AL., 1Cases of the following petitioners are consolidated herewith: The Connell Family Trust, docket No. 13668-01; The Connell Vehicle Co., docket No. 13669-01; The Connell Vehicle Co. #101, docket No. 13670-01; Thomas E. and Sara Anne Connell, docket No. 13671-01.                Petitioners                  v.          COMMISSIONER OF INTERNAL REVENUE,                Respondent

During 1999, P incurred a net loss of $ 84,794 in connection    with 323 transactions involving the purchase or sale of    securities, most of which P held for less than 1 month.    Approximately 94 percent (303) of those transactions occurred    during February, March, and April 1999, with no transactions    occurring in 6 of the other 9 months. Attached to P's petition    was a purported retroactive election under sec. 475(f)(1),    I.R.C., of mark-to-market accounting, available to "traders    in securities", to be effective as of Jan. 1, 1999. P claims    that, pursuant to that election, he is entitled to treat the    loss arising out of his 1999 trading activities as a fully    deductible, ordinary loss incurred in a trade or business under   sec. 165(c)(1), I.R.C.      1. Held : During 1999, P was not a "trader in    securities" eligible to make a mark-to-market election under   sec. 475(f)(1), I.R.C.      2. Held, further, P is entitled to deduct his 1999    net loss from purchases and sales of securities to the extent of   $ 3,000. Secs. 165(f), 1211(b)(1), I.R.C.

D executed a will in 1991 which provided for the creation of a trust that was to be funded with an amount equal to the aggregate federal estate tax exemption… Held: The trust was funded both by (1) assets in an amount equal to the aggregate federal estate tax exemption equivalent, and also by (2) the interests in the securities disclaimed by D's wife. Since the trust was therefore overfunded, the estate is liable for a deficiency in estate tax, as determined by respondent.

During June of 2002, P and R executed a Form 12257, Summary Notice of Determination, Waiver of Right to Judicial Review of a Collection Due Process Determination, and Waiver of Suspension of Levy… Held: R's failure to abate interest for 1998 was not an abuse of discretion.

P filed a petition for judicial review pursuant to sec.    6330, I.R.C., in response to a determination by R that levy    action is appropriate.   Held: Because there was no abuse of discretion by R    in concluding that P's noncompliance with Federal tax filing    obligations would render him ineligible for collection    alternatives, R's determination to proceed with collection    action is sustained.

P failed to file a Federal income tax return for the 1997 year. R subsequently determined a deficiency and additions to tax, which P then contested on the basis of tax protester arguments. Held: P is liable for the deficiency determined by R, for additions to tax under secs. 6651(a)(1) and 6654, I.R.C., and for a penalty under sec. 6673, I.R.C.

During 1999, P and her daughter, M, formed an unincorporated venture, V, as the vehicle for pursuing M's career as a singer and recording artist. P provided the financing for the venture. Held: R's denial of deductions is sustained. 2. Held, further, R's denial of a dependency exemption for M and of head of household filing status is sustained. 3. Held, further, R's penalty against P is sustained, in part, under sec. 6662, I.R.C.

MI is an accrual basis taxpayer with a fiscal year ending January 31. Held: Although the rate of return on investment generated by MI for the year at issue satisfied the independent investor test as articulated in Exacto Spring Corp. v. Comm'r , 196 F.3d 833 (7th Cir. 1999), revg. and remanding T.C. Memo. 1998-220, so that a presumption of reasonableness attached to S's compensation, sec. 1.162-7(b)(3),…

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate for the taxable years 1985 and 1999. Held: With respect to 1985, R's determination to proceed with collection action is sustained. With respect to 1999, the case is remanded for further consideration by the Internal Revenue Service Office of Appeals.

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 P has advanced solely groundless complaints in dispute of the notice of lien, R's determination to proceed with collection action is sustained. Held, further, damages under sec. 6673, I.R.C., are due from P and are awarded to the United States in the amount of $ 3,000.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action was appropriate. Held: Because P has advanced solely groundless complaints in dispute of the notice of intent to levy, R's determination to proceed with collection action is sustained. Held, further, damages under sec. 6673, I.R.C., are due from P and are awarded to the United States in the amount of $ 1,000.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action was appropriate. Held: Because the record shows that no period of limitations precludes collection and because P failed to submit any current financial documentation in support of her claims of inability to pay, R's determination to proceed with collection action is sustained.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action was appropriate. Held: Because the record shows that no period of limitations precludes collection and because P failed to submit any current financial documentation in support of his claims of inability to pay, R's determination to proceed with collection action is sustained.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action was appropriate. Held: Because P has advanced solely groundless complaints in dispute of the notice of intent to levy, R's determination to proceed with collection action is sustained. Held, further, damages under sec. 6673, I.R.C., are due from P and are awarded to the United States in the amount of $ 2,000.

Respondent determined deficiencies and additions to tax for petitioner's 1999 and 2000 taxable years. Held: Petitioner received taxable income during 1999 and 2000, and a portion thereof is subject to self-employment tax. Sec. 861, I.R.C., and regulations thereunder, do not exempt his compensation from tax.

P timely petitioned this Court to review R's determination to proceed with collection of assessments against P for 1993-96. After concessions by both parties, only 1996 remains in issue. Held: On the basis of the evidence, the determination by R's Appeals officer to proceed with collection of the assessments against P for 1996 is sustained.

Ps filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R to proceed with collection by levy of assessed income tax liabilities plus penalties and… Held: R's rejection of an installment agreement proposed by Ps did not constitute an abuse of discretion, and R's determination that Ps could pay $ 5,243 per month was reasonable.

R determined a tax deficiency and additions to tax, under   secs. 6651(a)(1) and 6654, I.R.C., for P for 1995. R has no    record that P filed a 1995 return, either jointly with her    husband (H) (now deceased) or separately. P and H did file    timely joint returns for 1994 and 1996. P claims that she and H    filed a timely 1995 joint return and, on that basis, she alleges    that the notice of deficiency is barred by the 3-year statute of    limitations on assessment under sec. 6501(a), I.R.C. She further    alleges that the notice of deficiency is "insufficient"    because it is not a joint notice. Assuming the notice of    deficiency is timely and valid, she alleges that she (1) is    taxable on only one-half of the interest included in her income    by R because it was paid on a joint bank account, and (2) is not    liable for the additions to tax.      1. Held: The notice of deficiency was timely issued    and constitutes a valid notice of deficiency under sec. 6212,    I.R.C.      2. Held, further, R's determinations of a tax    deficiency and addition to tax under sec. 6651(a)(1), I.R.C.,    are sustained.      3. Held, further, R's determination of an    addition to tax under sec. 6654, I.R.C., is modified by    application of the safe harbor provided by sec.   6654(d)(1)(B)(ii), I.R.C.

Michael L. Scheier and Jennifer J. Morales, for affected person United Surgical Partners International, Inc.

P caused the 401(k) plan of his wholly owned company to lend money to three entities in which P owned minority interests. P's company is the sole trustee of, and the administrator of, the 401(k) plan. Held: Each of the loans was a prohibited transaction within the meaning of sec. 4975(c)(1)(D), I.R.C. 1986. P, a disqualified person, is liable for excise taxes under sec. 4975(a) and (b), I.R.C. 1986; amounts to be determined. 2.