Volume 39 — Tax Court Memorandum

Held: Amount of deductions to which petitioner is entitled determined; held, further: Income tax returns were not signed under duress and were… Held: Amount of deductions to which petitioner is entitled determined; held, further: Income tax returns were not signed under duress and were intended as joint returns; held,further: At least some of the underpayment in tax for each year was due to fraud; held,further: Petitioner is not entitled to relief as an innocent spouse;…

Held: Amount of tip income determined. Held,further: Understatement of income not due to reasonable cause. Held: Amount of tip income determined. Held,further: Understatement of income not due to reasonable cause.

Held, amount of reasonable compensation paid to L. Rogers Wells, Jr. by Plastics Universal Corporation and Southern Explosives Corporation determined.

A contract for the sale of a business allocated part of the purchase price to a covenant not to compete. Held: the allocation to the covenant not to compete did not reflect the intent of the parties. Value of goodwill and covenant determined.

Held, payments of $175 per month over 60 months made pursuant to divorce decree were for support and subject to statutory contingencies under Georgia law. Such payments are deductible as alimony. Held: payments of $175 per month over 60 months made pursuant to divorce decree were for support and subject to statutory contingencies under Georgia law. Such payments are deductible as alimony.

Petitioner sold goods on an open account to a customer which incurred an operating loss. This loss put the customer in default of its bank line of credit. Held: respondent's determination was not plainly arbitrary or unreasonable and is, therefore, sustained.

Petitioner was a public school teacher and administrator. Held: Petitioner failed to prove error in respondent's determination that the claimed deductions are not allowable as trade or business expenses; certain amounts allowed under sections 164 and 212(3), I.R.C. 1954.

P filed a petition containing no allegation of specific error in the deficiency and additions to tax determined by the Commissioner. In his answer, the Commissioner alleged that a part of the underpayment of tax for each of the years in issue was due to fraud and the facts supporting such allegation. In his reply, P failed to deny any of the alleged facts. Held, since the undenied allegations by the Commissioner are sufficient to establish fraud and since the petition has raised no issue as to the deficiency or additions to tax, the Commissioner's motion for judgment on the pleadings is granted.

Petitioner, an ironworker living in Garland, Tex., took employment of unknown duration in Texas City because no work was available in the Garland area. Held: petitioner's employment in Texas City was temporary and his travel expenses away from Garland were deductible under sec. 162(a)(2), I.R.C. 1954.

The envelope containing the petition was sent by certified mail, has an illegible postmark, and was filed more than 90 days after the mailing of the notice of deficiency. Held: petitioners have established that the envelope containing their petition was mailed and postmarked within the 90-day period provided for in secs. 6213(a), 7502(a), I.R.C. 1954. Respondent's motion to dismiss for lack of jurisdiction is denied.

P, who was a candidate for a doctorate degree, served as a teaching assistant and received funds from the university. Held: such funds were not excludable from income as a scholarship or fellowship grant under sec. 117(a), I.R.C. 1954.

P and other parties were sued for breach of employment contract and breach of fiduciary duties. In settlement of such action, P and his co-defendants agreed to transfer 30,000 shares of C stock. Held: P is entitled to deduct the fair market value of his share of the stock, determined on the date such stock was transferred, as an ordinary and necessary business expense.

Petitioner knowingly and intentionally understated income and underpaid taxes for three consecutive years. Held: petitioner acted with intent to defraud the Government, and therefore, petitioner is subject to the addition to tax penalty under sec. 6653(b). Held further, amount of underpayment of tax is not reduced by filing amended returns after the due date of the original returns.

P traveled around the world allegedly to obtain material for a book about dining and tourism. Held: based on all the facts and circumstances, P's activity was not conducted for profit within the meaning of sec. 183, I.R.C. 1954.

Held, petitioner, a cash method taxpayer, did not suffer a net operating loss due to debts discharged in bankruptcy. Petitioner was not entitled to a credit against the deficiency for taxes withheld in 1975 because credit was previously given against withheld but undeposited employment taxes for prior years.

Held: Allowable business mileage deduction determined. Held: Allowable business mileage deduction determined.

H and W were divorced prior to 1975. The divorce decree granted H the right to claim their four children as dependents, but provided that W should have custody of them. Held: since W is not entitled to claim a dependency deduction for the child, she is not entitled to deduct the child care expenses.

In 1971, Ps purchased two certificates evidencing securities in a corporation, which were issued in the names of their sons. Held: the securities represented stock, and Ps were the owners thereof. Ps are entitled to a deduction for worthless securities; they are not entitled to a deduction for a bad debt or for a theft loss.

Held, petitioner, a truck driver, may not deduct the cost of meals consumed on turnaround trips on which he did not sleep or rest. United States v. Correll,389 U.S. 299 (1967).

Petitioner excluded from income amounts paid during 1973 by her former husband. Respondent moved for summary judgment on the ground that petitioner was collaterally estopped by a prior decision as to 1970 and 1971. Held: collateral estoppel applies to prevent pertitioner from relitigating the tax treatment of certain monthly payments paid to petitioner by her former husband pursuant to a paragraph of an integrated property settlement agreement, since the tax treatment of identical payments made in 1970 and 1971 was litigated in an earlier case involving the same petitioner, Waxler v. Commissioner, T.C. Memo. 1976-239, affd. in an unreported opinion (CA9, November 16, 1977). Respondent's motion for summary judgment with respect to this matter is granted. Held further: collateral estoppel does not apply to prevent petitioner from litigating the tax treatment of payments whose characterization was not litigated in the earlier case. Held further: respondent failed to show that there is an absence of a genuine dispute as to any material fact with respect to the characterization of payments not litigated in the earlier case; respondent's motion for summary judgment with respect to this matter is denied.

Held: (1) Petitioners are not entitled to a casualty loss deduction as a result of damage to their boat by storm. (2) Employee business expense deduction disallowed. Held: Petitioners are not entitled to a casualty loss deduction as a result of damage to their boat by storm. (2) Employee business expense deduction disallowed.

Petitioner operated a tutoring service for persons with learning disabilities. He rented an office. Held: petitioner is entitled to deduct under section 162, I.R.C. 1954, rental expenses paid for use of his 16th Street office; (2) costs of renovating his leased New Hampshire Avenue office constitute capital expenditures under section 263; and (3) the telephone, promotion and transportation expenditures for the computer monitoring program…

Held, petitioner's receipt of payments pursuant to a divorce decree were periodic payments within section 71(a) and therefore must be included in her gross income. Held: petitioner's receipt of payments pursuant to a divorce decree were periodic payments within section 71(a) and therefore must be included in her gross income. Held further, petitioner is liable for sec 6653(a) addition to tax for intentional disregard of rules and regulations.

Held, Lahai Roi Foundation is a separate taxable entity and was the beneficial owner of a ranch from December 5, 1968; held further,… Held: Lahai Roi Foundation is a separate taxable entity and was the beneficial owner of a ranch from December 5, 1968; held further, transfer of medical practice to Alan H. Nittler, M.D. Medical Office Trust was an assignment of income; held further, denial of tax-exempt status to Lahai Roi Foundation and Alan H. Nittler, M. D. Medical…

Petitioners did not realize income on transfers of stock to or for the benefit of their children where the transfers were conditioned on the donees agreeing to pay the Federal and state gift taxes resulting from the transfers. Turner v. Commissioner,49 T.C. 356 (1968), affd. per curiam 410 F. 2d 752 (6th Cir. 1969) followed.

At the trial herein the question presented was whether petitioner was sole owner of an apartment building. Held: sec. 183 is a new issue. Were the Court to hear this new issue substantial detriment would result to petitioner. Hence, we refuse to hear respondent's sec. 183 claim. Held further: other deductions determined.

Petitioner retired from the Army for longevity. Held: neither sec. 104(a)(4) nor sec. 105(d) apply to provide petitioner an exclusion from income with respect to his Army retirement pay. Held further: petitioner is entitled to no credit against tax with respect to his Army retirement pay.

Petitioner started two companies primarily in order to provide himself with a salary rather than as an investment. Petitioner loaned money to two key employees to invest in the companies. Held: the loans were made predominately to protect petitioner's status as an employee and are deductible as business bad debts.

Petitioner and his wife were divorced in June of 1972 but continued to live together thereafter. Held, petitioner and his wife were not entitled to file a joint return for 1972. Held: petitioner and his wife were not entitled to file a joint return for 1972. Petitioner sold an 831-acre tract of land in 1972. On his original return for 1972 petitioner reported his basis in the property as $4,198.

Held, petitioner realized income of $36,731.52 in 1969 when a corporation satisfied his contractual obligation for the purchase of that… Held: petitioner realized income of $36,731.52 in 1969 when a corporation satisfied his contractual obligation for the purchase of that corporation's stock in consideration for arranging a loan for such corporation; held further, receipt of corporate funds by petitioner in 1970 was a distribution from the corporation resulting in the…

Petitioner William received interest-free loans from a corporation all of whose stock was owned by trusts established by petitioner for the benefit of his children and of which he was the principal officer and director. Held: Petitioner did not realize taxable income by reason of the interest-free loans to him by the corporation. Dean v. Commissioner,35 T.C. 1083 (1961), and Greenspun v. Commissioner, 72 T.C.     (Aug. 28, 1979), followed.

The envelope containing the petition in this case was mailed from New York, New York, and was postmarked by a private postage meter. Held: petitioner failed to prove it met the requirements of sec. 301.7502-1(c)(1)(iii)(b), Proced. & Admin. Regs.; accordingly, under secs. 7502(b) and 6213(a), I.R.C. 1954, the petition was not timely filed. Respondent's motion to dismiss for lack of jurisdiction is granted.

Held: (1) Respondent's determination that petitioner understated income sustained; (2) additional deductions for business expenses denied; (3) deductions for charitable contributions disallowed; (4) petitioner entitled to a bad debt deduction; (5) claimed loss of business property disallowed; and (6) section 6653(a) addition to tax imposed.

Held, petitioner was availed of for the purpose of avoiding income tax with respect to its shareholders. Held: petitioner was availed of for the purpose of avoiding income tax with respect to its shareholders. Held, further, amounts paid to certain officers of petitioner did not constitute unreasonable compensation for services.

Petitioner, a devout Seventh-Day Adventist, filed twice for exemption from self-employment taxes imposed on his dentistry income by sections 1401 and 1402, I.R.C. 1954. Both applications were denied as not qualified under section 1402(g). Petitioner claims denial of his exemption application, while granting others, deprives him of his rights of religion and equal protection guaranteed under the First and Fifth Amendments to the Constitution. Held, the provisions of sections 1401 and 1402 do not deny petitioner his Constitutional rights. Palmer v. Commissioner, 52 T.C. 310 (1969), and Henson v. Commissioner, 66 T.C. 835 (1976) followed.

Petitioner was employed as a choreographer. Held, petitioner was entitled to a sec. 162-5, Income Tax Regs. education expense deduction. Held: petitioner was entitled to a sec. 162-5, Income Tax Regs. education expense deduction. Held further,sec. 165(c)(3), I.R.C. 1954 casualty loss determined.

Both former spouses claimed entitlement to the exemption deductions with respect to their children. Petitioner was the custodial parent. Held: Petitioner has shown by a clear preponderance of the evidence that she provided more for the support of the children than did her former husband. Held further: Petitioner is entitled to the exemption deduction in issue. Sec. 152(e), I.R.C. 1954.

Both former spouses claimed entitlement to the exemption deductions with respect to their children. Petitioner husband was the non-custodial parent. Held: On behalf of former wife, in effect, respondent introduced evidence which showed by a clear preponderance of the evidence that former wife provided more for the support of the children than did petitioners. Held further: Petitioners are not entitled to the exemption deductions in issue. Sec. 152(e), I.R.C. 1954.

Held, petition not timely filed. Respondent's motion to dismiss for lack of jurisdiction granted. Held: petition not timely filed. Respondent's motion to dismiss for lack of jurisdiction granted.

In 1963 petitioners purchased a 225-acre farm. Depreciable structures on the property consisted of a house and barn. Held: petitioners are in business of furnishing water, sewage and electrical utilities within the meaning of secs. 38 and 4,, I.R.C. 1954. Held further, petitioners improperly allocated their basis in the 225-acre farm between the depreciable improvement and non-depreciable land.

Held, deductions for expenses of meals, lodging, and transportation while traveling away from home in excess of amounts allowed by respondent are not allowed for lack of substantiation. Held: deductions for expenses of meals, lodging, and transportation while traveling away from home in excess of amounts allowed by respondent are not allowed for lack of substantiation. Expenses for weekend trips from jobsites to home to be with family are nondeductible personal expenditures.

Held, claimed dependency exemptions disallowed. Held further, petitioner is not entitled to file his income tax returns as an unmarried individual. Held: claimed dependency exemptions disallowed. Held further, petitioner is not entitled to file his income tax returns as an unmarried individual. Held further, petitioner's standard deduction limited to $1,000. Held further, section 6653(a) addition to tax imposed.

Petitioners sold their principal residence and excluded the gain thereon from income under sec. 1034, I.R.C. 1954. Held: Sec. 1034 must be strictly construed and petitioners' construction problems cannot exempt them from the statute's clear requirements. Held further: Holding period for property does not begin to run until it is actually purchased or otherwise acquired.

Petitioner allocated part of the proceeds from his sale of pipe to "goodwill". Before this Court petitioner attempted to apply the so-called "capitalization" method for valuing goodwill by showing that he had a pipe rental business and that this business generated excess income attributable to goodwill. A necessary ingredient of petitioner's theory was that the pipe had a fair market value less than its sale price. Held, petitioner failed to establish that the pipe had a fair market value of less than what he received for it. Thus this Court cannot conclude that petitioner received any amount in respect of goodwill.

Held: Amounts of reasonable compensation determined.

1. Petitioners must include in income for 1975 a refund of State income tax deducted in 1974 and received in 1975. 2. Petitioners are not entitled to deduct as a charitable contribution expenses incurred in driving students of a school where Martha taught from their homes to the school and back home. 3. Amount of deductible child care expenses determined.

(1) Based on her membership in the Church of Christ, Scientist, P applied for exemption from the self-employment tax under sec. 1402(g), I.R.C. 1954, relating to members of certain religious faiths. Held: P did not qualify for the exemptions since she failed to prove that her church satisfies the requirements of sec. 1402(g)(1)(C) and (D), relating to opposition to a private or public insurance program and the provision of alternative care for its members.

Held, no common law marriage existed between P and H from Feb. 1967 through June 1973. Held: no common law marriage existed between P and H from Feb. 1967 through June 1973. Therefore, although P and H resided in a community property State, P is not taxable on one-half of H's income during the years in issue.

Held: Respondent's deficiency determination sustained. Held further: Respondent's determination of additions to tax under secs. 6651(a)(1), 6653(a), and 6654(a) sustained. Held: Respondent's deficiency determination sustained. Held further: Respondent's determination of additions to tax under secs. 6651(a)(1), 6653(a), and 6654(a) sustained.

Held, loan repayments to shareholders taxable as ordinary income. Held: loan repayments to shareholders taxable as ordinary income. Held further, payments by a corporation in satisfaction of its shareholders' income tax liabilities treated as loan repayments taxable as ordinary income. Held further, net operating loss deduction disallowed.

Held: 1. Respondent's determination of deficiencies in tax and additions to tax pursuant to secs. 6651(a) and 6653(a), I.R.C. 1954, for taxable years 1967 and 1969-73 upheld. 2. Held: Respondent's determination of deficiencies in tax and additions to tax pursuant to secs. 6651(a) and 6653(a), I.R.C. 1954, for taxable years 1967 and 1969-73 upheld. 2. Respondent's claim by amended answer for an increase in the deficiency in tax and additions to tax for 1968 upheld.

Petitioner failed to report a substantial portion of its income. The material allegations of fact by which respondent sought to sustain a fraud penalty under sec. 6653(b) were put forth in his answer. Held: both respondent's motions granted.

Both former spouses claimed entitlement to the dependency exemption deductions with respect to their children. Held: sec. 152(e)(2)(B) applied to allocate exemption deductions between former spouses. Held: sec. 152(e)(2)(B) applied to allocate exemption deductions between former spouses.

Held: respondent's deficiency determinaton sustained. Held further: Respondent's determination of additions to tax under sec. 6653(b) sustained. Held: respondent's deficiency determinaton sustained. Held further: Respondent's determination of additions to tax under sec. 6653(b) sustained.

(1) P moved to have the burden of proof shifted to R, alleging that the determinations in the notice of deficiency were without basis, that R did not follow his own procedures during his audit of P,… Held: motion denied since P has failed to prove any grounds for looking behind the notice of deficiency. (2) P, who was a minister of the Church of Scientology, was associated with a number of missions of the church.

In 1973, petitioner-husband received a distribution from the trust of a pension plan. Held: a portion of the 1973 distribution is entitled to special tax treatment (largely long-term capital gain) under section 402(a)(2), I.R.C. 1954. Woodson v. Commissioner, 73 T.C. (Feb. 5, 1980).

Held: Respondent's reconstruction of income using the bank deposits method upheld with minor adjustment. Held: Respondent's reconstruction of income using the bank deposits method upheld with minor adjustment. Heldfurther: Petitioner's transfer of a deed was made to secure a loan rather than as a sale of the property.

Held: Respondent's deficiency determination sustained. Held further: Respondent's determination of additions to tax under secs. 6651(a)(1) and 6653(a) sustained. Held: Respondent's deficiency determination sustained. Held further: Respondent's determination of additions to tax under secs. 6651(a)(1) and 6653(a) sustained.

Held, petitioner did not establish that amounts paid to stockholder-employee in each of the taxable years in issue was reasonable compensation. Held, further, reasonable compensation for each of the taxable years determined.

Held, compensation paid to petitioner's principal officer and stockholder was reasonable in amount and was paid for services rendered; hence, it is fully deductible under sec. 162(a)(1), I.R.C. 1954. Held: compensation paid to petitioner's principal officer and stockholder was reasonable in amount and was paid for services rendered; hence, it is fully deductible under sec. 162(a)(1), I.R.C. 1954.

Held: Interest payments received by petitioner from a related corporation under a claim of right were includable in its gross income thereby subjecting petitioner to the… Held: Interest payments received by petitioner from a related corporation under a claim of right were includable in its gross income thereby subjecting petitioner to the personal holding company tax; petitioner was not a mere conduit or nominee. Bell Realty Trust v. Commissioner,65 T.C. 766 (1976) followed.

Petitioner was the backer of a numbers operation. While the operation generated a large amount of income to petitioner, he deliberately failed to report any such income. Held: the amounts of petitioner's taxable income from gambling determined. Held further: petitioner liable for sec. 6653(a) addition to tax.

The garage and lower portions of petitioners' house were flooded in a rainstorm. Held: the cost of repairs is sufficient evidence of petitioners' casualty loss and their claim is to that extent allowed.