Slip opinions decided 2007 — Tax Court Memorandum

P claimed earned income credit (EIC) as a refund of $ 2,890 on his 2002 tax return. Held: P's motion for litigation costs denied; R established that R's position in this case was substantially justified. Sec. 7430(c)(4)(B)(i), I.R.C. 1986. Other contentions evaluated.

The Internal Revenue Service (IRS) issued final notices of intent to levy for a number of taxable years, but P requested an IRS Appeals Office hearing (hearing) under sec. 6330, I.R.C., for only one… Held: Because the District Court's sua sponte dismissal of P's complaint after P's failure to serve the defendant was not a determination under sec. 6330, I.R.C., that the appeal was to an incorrect court, P's petition to this Court was not timely.

R disallowed losses in excess of Ps' winnings from gambling and    determined both a deficiency and a penalty for substantial    understatement for 2000. After conceding that H's net gambling    losses were not properly deductible, Ps argued that, as a    professional tournament poker player, W's net losses should be    treated the same as those of any other professional sport    participants.    Held: W's net gambling losses are not exempt from the    limitations of sec. 165(d), I.R.C.    Held, further: We leave for the parties to    determine as part of their computations under Rule 155, Tax    Court Rules of Practice and Procedure, whether there was a    substantial understatement for the taxable year in issue; if so,    Ps are liable for the accuracy-related penalty.

Ps established offshore entities, and an offshore bank account and credit card, that they used to conceal unreported income. Ps also understated their S corporation's income and failed to include in their income distributions from the S corporation that exceeded their basis. R determined deficiencies for 1999, 2000, and 2001, and additions to tax pursuant to sec. 6651(a)(1), I.R.C., for 1999 and 2000. R determined civil fraud penalties for P-H pursuant to sec. 6663, I.R.C., for 1999, 2000, and 2001. In the alternative to liability for sec. 6663, I.R.C., R determined accuracy-related penalties for Ps pursuant to sec. 6662, I.R.C., for 1999, 2000, and 2001. Held: R's deficiency determinations for 1999, 2000, and 2001, are sustained. Held, further, Ps are liable for the additions to tax pursuant to sec. 6651(a)(1), I.R.C., for 1999 and 2000. Held, further, P-H is liable for the civil fraud penalty pursuant to sec. 6663, I.R.C., for 1999, 2000, and 2001.

In late 1999, D received stock in ECNC in exchange for her interest in a business venture. Held: D, and not her son, is considered under State law to be the owner of all ECNC stock in the joint account and is therefore taxable on the full amount of the gain arising from its sale.

P failed to file an income tax return or pay any amount of Federal income tax for 2002. Held: Summary judgment in favor of R is appropriate with respect to P's liability for the Federal income tax plus the addition to tax for failure to file a return. Summary judgment is not appropriate for the additions to tax for failure to pay tax shown on a return or failure to make estimated tax payments.

P was established as a nonprofit corporation under the laws of the State of Texas for the purpose of operating a school providing education to children in the San Antonio area. Held: P furthers private interests and therefore is not operated exclusively for exempt charitable and/or educational purposes. Consequently, P is not entitled to exemption from income taxation under sec. 501(a), I.R.C., as an organization described in sec. 501(c)(3), I.R.C.

P and her former spouse were parties to earlier litigation in this Court in which P stipulated she was not entitled to relief under former sec. 6013(e), I.R.C. 1986. Held: P's stipulated concession precludes her entitlement to judgment as a matter of law, and so P's partial summary judgment motion is denied.

P filed joint Federal income tax returns with her husband H for the 1997 and 1999 taxable years. Held: P is not entitled to relief from joint and several liability, pursuant to sec. 6015(f), I.R.C., with respect to her 1997 and 1999 taxable years.

On Mar. 10, 2005, R sent a notice of determination concerning collection action by certified mail to P's last known address. The address contained an erroneous ZIP Code. Delivery attempts were made on Mar. 14 and Apr. 11, 2005. The notice of determination was delivered on Apr. 13, 2005. P filed a petition on Apr. 27, 2005. R filed a motion to dismiss P's petition for lack of jurisdiction on the ground that it was not filed timely. Held: The notice of determination concerning collection action is valid as it was sent by certified mail to petitioner's last known address. Held, further: Because P did not file timely his petition, this Court lacks jurisdiction to review R's determination to proceed with collection action.

R disallowed a majority of P's claimed business expense deductions for 2000, due to a lack of substantiation, and determined a deficiency. Held: The notice of deficiency is valid as petitioner received actual notice of the deficiency without prejudicial delay and filed timely a petition. Held, further, P was not a statutory employee for 2000. Held, further, The majority of R's deficiency determinations are sustained.

P filed a petition and motion to restrain assessment on the same date. Held: Since no notice of deficiency or notice of determination was issued in this case, the Court lacks jurisdiction. Heldfurther, the Court's order to show cause why this case should not be dismissed for lack of jurisdiction shall be made absolute.

Respondent filed a Notice of Federal Tax Lien against P for the unpaid balance of his Federal income taxes for 2003. Held: R's motion for summary judgment will be granted. R may proceed with collection by lien.

Terri A. Merriam, for participating partners in docket Nos. 9554-94 and 13599-94.

These cases brought pursuant to sec. 6330, I.R.C., are before the Court to determine whether Ps must pay penalties pursuant to sec. 6673(a)(1), I.R.C., for instituting procedures primarily for delay, etc., and whether counsel must pay R's excess counsel fees pursuant to sec. 6673(a)(2), I.R.C., for unreasonably and vexatiously multiplying the proceedings. 1. Held: P husband penalized pursuant to sec. 6673(a)(1), I.R.C., for instituting and maintaining proceedings primarily for delay, making frivolous arguments and taking groundless positions, and unreasonably failing to pursue available administrative remedies. 2. Held, further, Ps' lead counsel liable for R's attorney's fees since he signed pleadings and other papers knowing Ps' claims to be meritless and, thus, abused the judicial process and unreasonably and vexatiously multiplied the proceedings.

These cases brought pursuant to sec. 6330, I.R.C., are before the Court to determine whether Ps must pay penalties pursuant to sec. 6673(a)(1), I.R.C., for instituting procedures primarily for delay,… Held: Ps penalized pursuant to sec. 6673(a)(1), I.R.C., for instituting and maintaining proceedings primarily for delay, making frivolous arguments and taking groundless positions, and unreasonably failing to pursue available administrative remedies. 2.

P filed a Federal income tax return for 2004, claiming dependency exemption deductions, head of household filing status, child tax credits, and an earned income credit. Held: P is liable for the deficiency determined by R.

P failed to file a Federal income tax return for 2002. Held: P is liable for the deficiency and additions to tax.

P-Wife moved to amend the petitions to assert a claim for innocent spouse relief under sec. 6015(c) and (f), I.R.C. Subsequently, P-Wife moved for summary judgment, and R conceded. Held: While P-Wife was the prevailing party, R was substantially justified in opposing P-Wife's motion to amend the petitions to assert a claim for innocent spouse relief.

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: R's determination to proceed with collection by levy is sustained.

P filed a petition for judicial review in response to R's determination to proceed with collection by lien and/or levy of assessed income tax liabilities, plus additions to tax and interest, for 1996-2002. R's settlement officer rejected P's offer-in-compromise because it was not a viable alternative to collection. The settlement officer, applying guidelines established by the Internal Revenue Manual, determined that P should include in the amount of his offer-in-compromise the value of certain "dissipated assets", which, because of the dissipation, became unavailable for payment of P's delinquent income tax obligation. The settlement officer required this inclusion, notwithstanding that some of the assets had been used for proper purposes. Held: R's rejection of P's offer-in-compromise was an abuse of discretion, and this case will be remanded to the IRS Appeals Office so that P may make a revised offer reflecting a reduced amount of dissipated assets.

P-H failed to pay child support and alimony to P-W as required by their divorce agreement. Held: The domestic relations court order did not give P-W the right to receive the distribution directly from the Plan; thus, the court order was not a QDRO under sec. 414(p)(1), I.R.C. Consequently, the distribution was not made under a QDRO, so the exception in sec. 402(e)(1), I.R.C., does not apply, and P-H must include the distribution…

Bryan C. Skarlatos and Christopher M. Ferguson, for participating partner.

R disallowed a portion of Ps' claimed gambling loss deduction for 2002, due to a lack of substantiation, and determined a tax deficiency. Held: R's tax deficiency determination is sustained. Held: R's tax deficiency determination is sustained.

On their amended 2001 Federal income tax return, P's claimed a theft loss deduction of $ 172,904 on the basis that their contractor had committed fraud against them. Held: Ps are not entitled to any theft loss deduction for the 2001 taxable year.