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 filed a motion to dismiss P's collection review action directed at R's effort to levy upon P's property. R argued lack of jurisdiction due to P's untimely request for an Appeals Office hearing. Held: R's motion to dismiss for lack of jurisdiction on the ground that P made an untimely hearing request will be denied. 2. Held, further: No valid final notice of intent to levy was issued because the notice was not mailed to P's last known address. 3.

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.

A petition was filed on behalf of the estate 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 is sustained.

Ps were investors in a purported tax shelter and now dispute additions to tax related to R's disallowance of losses and credits resulting from the investment. Held: P-husband's actions regarding the partnership interest were negligent, and R was not required to advise Ps regarding R's investigation of the promoter. Therefore, the additions to tax under sec. 6653(a)(1) and (2), I.R.C., are sustained.

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.

In 1988, Ps, Georgia residents, purchased a second home (vacation home 1), also in Georgia, which the family used on weekends from mid-April to Labor Day for recreational purposes. Held: Neither vacation home 1 nor vacation home 2 was held for investment. Therefore, Ps are not entitled to treat the disposal of the former and acquisition of the latter in 2000 as a tax-free like-kind exchange under sec. 1031, I.R.C.2.

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 rejected the Forms 1040 submitted by P for 1998, 1999, 2001, and 2002 (all of which reported zero tax owed) as frivolous and prepared substitute returns pursuant to which he determined deficiencies for all 4 years and additions to tax under secs. 6651(a)(1), I.R.C., (for all years), 6651(a)(2), I.R.C., (for 2002) and 6654, I.R.C., (for 1999 and 2001). R conceded certain income inclusions for all years, the addition to tax under sec. 6651(a)(2), I.R.C., and the 2001 addition to tax under sec. 6654, I.R.C. R's income inclusions, after concessions, consist of (1) "wages/misc. income" for 1998 and 1999, (2) retirement distributions for all years, (3) interest income for 1998, and (4) Social Security payments for 2001 and 2002. R also asks us to impose a penalty under sec. 6673(a)(1), I.R.C. P puts forth frivolous tax-protester arguments in opposition to R's proposed income inclusions and additions to tax. 1. Held: R's nonconceded inclusions in P's income for 1998 and 1999 are sustained. 2. Held, further, P had zero includable Social Security benefits for 2001 and 2002, and, because his adjusted gross income without those benefits is less than his standard deduction and personal exemption, he incurs no income tax deficiencies for those years. 3. Held, further, P is liable for additions to tax under sec. 6651(a)(1), I.R.C., for 1998 and 1999 and for an addition to tax under sec. 6654, I.R.C., for 1999. 4. Held, further, because P was not required to file returns for 2001 and 2002, he is not liable for additions to tax under sec. 6651(a)(1), I.R.C., for those years. 5. Held, further, P is liable for a penalty under sec. 6673(a)(1), I.R.C.

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.

Ps, along with approximately 150 similarly situated taxpayers, are U.S. persons who earned income from working in Antarctica. Held: The income Ps earned in Antarctica is not excludable from income pursuant to I.R.C. sec. 911. Arnett v. Comm'r, 126 T.C. 89 (2006), affd. 473 F.3d 790 (7th Cir. 2007), followed.

R mailed a statutory notice of deficiency to P, which, although it asserted a deficiency and contained figures and adjustments to P's gift tax liability for 1996, referenced only 1995. Held: The issuance by R of the notice of determination sustaining the lien and levy notices was not an abuse of discretion, and R may proceed with collection.

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.

Prior to 1999, a brokerage account at E Trade Securities, Inc., was established in the name of P-W. For 1999, P-W filed a separate return reporting capital gain income from activity in the E Trade account. For 2000, Ps contend that losses generated in the E Trade account are entitled to ordinary income treatment by reason of a business of P-H as a trader in securities and that various expenses should be allowed as deductions of the securities trading business and/or a consulting business of P-H. Held: Gains and losses in the E Trade account must be attributed to P-W and are capital in nature. Held, further, Ps are not entitled to expense deductions in excess of those allowed by R. Held, further, Ps are liable for the accuracy-related penalty pursuant to sec. 6662, I.R.C., for 2000.

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 failed to file Federal income tax returns for 2000 and 2001 until after he was issued a notice of deficiency for those taxable years. Held: P is liable for the additions to tax pursuant to secs. 6651(a)(1) and (2) and 6654(a), I.R.C.

P failed to file Federal income tax returns for 1998, 2000, 2001, 2002, and 2003. Held: P is liable for the deficiencies determined by R and additions to tax pursuant to secs. 6651(a)(1) and 6654(a), I.R.C.

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.

D died 46 days after his wife, W. D's estate claimed a marital deduction for property that was transferred to W as if W had survived D. W's will states that D is deemed to have… Held: D's testamentary intent that D be deemed to have predeceased W will not be recognized as qualifying the estate for the marital deduction for Federal estate tax purposes because sec. 2056, I.R.C., requires that a spouse actually survive his or her spouse in order to be a surviving spouse.

P was a 50-percent shareholder in LPP, which had claimed S corporation status since it elected that status in 1975. Held: P has failed to prove that the 1986 agreement constituted a binding agreement relating to distribution * * * proceeds within the meaning of sec. 1.1361-1(l)(2)(i), Income Tax Regs., and, therefore, that that agreement created a second class of stock, which caused LPP to lose its S corporation status.