Volume 54 — Tax Court Memorandum

Decedent and his deceased wife executed a joint and mutual will leaving certain property to the survivor of them, with the remainder to named beneficiaries. Held: Decedent did not make a present gift of the savings accounts in which he had an interest at the time of his spouse's death.

R determined an income tax deficiency against an estate, directing the notice of deficiency to the executor (E). Held: B cannot file a petition as he is not an authorized representative of the estate. Held further, that B is not an executor within the meaning of section 2203. Held further, that there has been no ratification of the original petition. Held further, that this matter is dismissed for lack of jurisdiction.

P and its subsidiaries were corporations involved in the beer industry and in the commercial and residential real estate business. Held: P is not entitled to relief under section 1341, I.R.C. 1954, because it did not include in its gross income an item for which it could later claim a deduction; (2) P correctly estimated the useful life of the May Company building, and depreciation deductions are reduced as of the taxable year 1969 rather than the taxable year 1968;…

During 1980, P earned commission income and was discharged from a debt that he owed to his former employer. On their 1980 joint Federal income tax return, Ps did not include such commission or discharge of debt in gross income. Ps also claimed deductions for business expenses, interest expenses, and medical expenses in 1980. Held: (1) Ps must include the commission income and discharge of the debt in gross income for 1980 under sec. 61, I.R.C. 1954. (2) Ps have failed to substantiate some of the claimed deductions for business, interest, and medical expenses. (3) Ps are liable for the addition to tax under sec. 6653(a), I.R.C. 1954, for negligence or intentional disregard of rules and regulations.

In Feb. 1982, P entered into a contract with Masters Financial under which he sold Mid-South leases on a commission basis. Held: All of the commissions paid under the two contracts must be reported by P, because all of such commissions were earned by him. (2) P's failure to report all of the commissions was fraudulent, and Ps are liable for the additions to tax for fraud under sec. 6653(b)(1) and ( 2), I.R.C. 1954.

Petitioner, a radiation safety technician, maintained his residence in Bruceton, Tennessee, during 1980 and 1981 and claimed deductions for living and traveling expenses incurred at job sites located throughout the eastern United States. Petitioner did not include as income the auto, lodging and meal allowances paid to him by his employer. Held, petitioner may not deduct such expenses since he was not away from home within the meaning of sec. 162(a)(2), I.R.C. 1954. Held further, such allowances received from petitioner's employer are includable in petitioner's taxable income.

Petitioner and other investors formed Scott-Glenn Investments, Limited, in 1976 for the purpose of investing in Scotch whiskey receipts. Held: the requirements of the regulations under section 1244 have not been complied with and petitioner is not entitled to a $ 10,000 ordinary loss. Held further: petitioner is liable for an addition to tax under sec. 6651(a)(1).

Held: On the facts, petitioners were not engaged in the business of farming for profit during the years in issue and are not entitled to deductions for farm losses. Held, further: Petitioners are not liable for additions to tax for negligence under section 6653(a) for either 1979 or 1980.

Petitioner-husband operated a dental practice and engaged in the trade or business of horse racing during 1975 and 1976. Held: Petitioner-husband's dental practice income for 1975 and 1976 was underreported. Amounts determined. (2) Petitioner-husband's loss from horse racing in 1975 did not exceed the amount stipulated to by the parties. (3) Petitioners are liable for an addition to tax under sec. 6653(a), I.R.C. 1954, for 1976.

P was president and majority shareholder of B & B, a corporation engaged in the trade or business of soliciting customers to trade in commodity contracts. Held: P is not liable, as a transferee of the assets of B & B, for B & B's tax liability. Cole v. Commissioner, 2997 F.2d 174 (8th Cir. 1961), revg. T.C. Memo. 1960-278, followed. Golsen v. Commissioner,54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), applied.

Held: Petitioners failed to substantiate the major portion of otherwise deductible travel expense; deduction disallowed for uncollected rental income not reported for Federal tax purposes; petitioners are taxable on continuation of pay pursuant to 5 U.S.C. sec. 8118 (1982) and on accumulated sick leave paid following a heart attack which precluded petitioner husband from continuing to work as a fire fighter for the Veterans Administration.

P and his former wife, G, entered into an agreement with respect to their rights and obligations incident to their divorce. Held: Under the facts and circumstances, the payments made by P incident to the divorce are not deductible under sec. 215, I.R.C. 1954. (2) P is not entitled to a deduction under sec. 483, I.R.C. 1954, for imputed interest with respect to such payments.

R determined a deficiency in income tax and directed a statutory notice to a decedent and his spouse. Held: the case, as it relates to T, is dismissed for lack of jurisdiction as T is not a proper party to petition this Court.

During 1971-1975, petitioner-husband advanced funds to five limited partnerships in which he was the general partner. The partnerships accrued on their books the interest payable on these advances but never actually paid this interest. On their 1977 tax return, petitioners claimed a bad debt deduction in the total amounts shown as interest payable on the partnerships' books. All five partnerships were operating partnerships as of December 31, 1977, and for years afterward. Held: petitioners have not met their burden of proving that they were entitled to a bad debt deduction for 1977.

Held: Respondent failed to prove addition to tax under sec. 6653(b); various factual issues including the credibility of Dr. and Mrs. Slawek determined so that the parties can compute taxable income… Held: Respondent failed to prove addition to tax under sec. 6653(b); various factual issues including the credibility of Dr. and Mrs. Slawek determined so that the parties can compute taxable income for the years involved.

K and M were married and filed joint Federal income tax returns for the years in issue. Held: Ps are not entitled to deductions for business, investment, travel and entertainment expenses, for charitable contributions or for rental expenses in excess of the amounts allowed by R. Held further, the amount of gain realized from the sale of the 1,900 shares of stock is taxable income to Ps.

Held: (1) P was taxable on the income received by her in 1982; and (2) P is liable for additions to tax under sec. 6651(a)(1), I.R.C. 1954, for… Held: P was taxable on the income received by her in 1982; and (2) P is liable for additions to tax under sec. 6651(a)(1), I.R.C. 1954, for failure to file a return, under sec. 6653(a), I.R.C. 1954, for negligence or intentional disregard of rules and regulations, and under sec. 6654, I.R.C. 1954, for underpayment of estimated tax.

Held: (1) For 1973 through 1976, Ps understated their taxable income and underpaid their taxes in the amounts determined by the… Held: For 1973 through 1976, Ps understated their taxable income and underpaid their taxes in the amounts determined by the Commissioner by means of the source and application of funds method of reconstruction of income; (2) For 1977, Ps are not entitled to claim a short-term capital loss with respect to certain shares of stock; (3) For…

P and his wife, W, filed separate returns for 1981. On such returns, they each reported one-half of P's income. Held: Income earned by P and reported on W's return is taxable to P; and (2) P is not liable for additions to tax for negligence under sec. 6653(a), I.R.C. 1954.

In 1977, petitioner established the Kenneth A. Stoecklin Equity Trust and Kenneth A. Stoecklin C.P.A., P.C., a professional corporation. Held: petitioner may not use the Trust to avoid taxation on his earned income; held further, other income of the Trust attributed to petitioner under section 671 et seq.; held further, petitioner must recognize the fair market value of silver coins paid to the Trust; held further, petitioner is denied a loss on the purported worthlessness…

Held: (1) The corporate petitioners' cases are dismissed because their petitions were not timely filed. Secs. 6213(a), 7502(a), I.R.C. 1954. Held: The corporate petitioners' cases are dismissed because their petitions were not timely filed. Secs. 6213(a), 7502(a), I.R.C. 1954. (2) Respondent's position in the civil litigation was reasonable; petitioners are not entitled to litigation costs. Sec. 7430, I.R.C. 1954.

Petitioners deducted losses attributable to their investments in gold and silver mining programs sponsored by Resources America, Inc. The losses purportedly represented royalty expenses and mining development or exploration expenses, which petitioners paid in the form of cash and nonrecourse notes. Held, the activities giving rise to the claimed losses were not engaged in with the predominant purpose and intention of making a profit. Ramsay v. Commissioner,83 T.C. 793 (1984), followed. Consequently, the losses are not deductible under secs. 162(a), 616(a), or 617(a), I.R.C. 1954. Held further, the underpayments of taxes in these cases were substantial underpayments attributable to tax motivated transactions within the meaning of sec. 6621(c), as redesignated by the Tax Reform Act of 1986, and petitioners are therefore liable for additional interest under that section. Held further, petitioners' positions in these cases are frivolous and groundless, and they instituted and maintained these proceedings primarily for delay. Consequently, petitioners are liable for damages under sec. 6673, I.R.C. 1954.

In 1976 and 1978, petitioner put into service at its steel mill certain electric overhead travelling cranes and supporting structures. The structures are sheeted on the top by metal roofing and on the sides and ends by fiberglass siding.

Fs and S owned land as tenants in common. Fs were the sole shareholders of a corporation and sole trustees and beneficiaries of its pension trust. Held: On consideration of all the facts, the substance of the transaction as a whole was a sale by Fs and S to the third party. Held: The additions to tax under sec. 6653(a)(1) and ( 2), I.R.C. 1954, are not applicable.

Petitioners have conceded that their family trust should not be recognized for income tax purposes. Held: That petitioners are liable for additions to tax under secs. 6653(a)(1) and (2), 6651(a), and 6621(c), I.R.C. 1954.

Petitioner was convicted in a Federal criminal trial of fraud, racketeering, perjury, and conspiracy. Held: Respondent has shown that there is no genuine issue as to any material fact; petitioner's statement and materials are inadequate to rebut this showing. Rule 121(d), Tax Court Rules of Practice & Procedure. (2) Respondent has shown by clear and convincing evidence that petitioner has an underpayment due to fraud for each year in issue.

An employee of petitioner-husband Donald's actuary business calculated a refund for the wrong person employed by Donald's client, the Cook County Employees' Annuity and Benefit Fund (the Fund). Held: petitioners are not entitled to an ordinary and necessary business expense deduction for the amount paid by Donald's actuary business to reimburse the Fund. Heidt v. Commissioner,274 F.2d 25 (7th Cir. 1959), affg. a Memorandum Opinion of this Court, followed.

P, a loss corporation, acquired G, a group of profitable corporations. P filed consolidated returns with G for the taxable years ended June 30, 1974 and 1975, and deducted its preacquisition losses against the profits of G. R disallowed deduction of the losses, determining under section 269 that P acquired G for the principal purpose of evading or avoiding Federal income tax by securing the deduction of losses which P would otherwise have been unable to use.

Petitioner was convicted of violating I.R.C. section 7201 for the taxable years 1968 and 1969. Held: respondent met his burden of proving fraud by clear and convincing evidence for the taxable year 1967. Held further, petitioner's criminal conviction collaterally estops him from denying fraud for the taxable years 1968 and 1969.

Held: Allegations deemed admitted under Rule 37(c) sufficient to sustain respondent's burden of proving fraud; respondent's Motion for Summary Judgment is granted. Held: Allegations deemed admitted under Rule 37(c) sufficient to sustain respondent's burden of proving fraud; respondent's Motion for Summary Judgment is granted.

Held, petitioner dismissed as to issues on which petitioner has burden of proof since petitioner's failure to comply with Court orders was due to… Held: petitioner dismissed as to issues on which petitioner has burden of proof since petitioner's failure to comply with Court orders was due to direct willfulness or bad faith. Rule 104(c), Tax Court Rules of Practice and Procedure; Dusha v. Commissioner,82 T.C. 592 (1984). Held further, addition to tax for fraud determined.

In T.C. Memo. 1985-392, it was determined that stock received by petitioners in docket No. 3881-79 pursuant to the exercise of an option is ordinary income to the extent of the excess of the fair… Held: Fair market value of such stock determined as of the applicable dates.

Petitioner's shrimp boat sank at its mooring shortly after an on-board water pump failed. Held: petitioner is entitled to a casualty loss under sec. 165(a) in an amount determined under the rule of Cohan v. Commissioner,39 F.2d 540 (2d Cir. 1930). After the sinking of his boat, petitioner secured employment in Decatur, Georgia, while maintaining his residence in Houston, Texas. Held, having maintained no records as required by sec. 274 petitioner is not entitled to unreimbursed employee business expenses. Held further, petitioner is liable for an addition to tax under sec. 6651(a)(1).

Held, Petitioners' acquisition of TV programs was not an activity entered into for profit; held further, petitioners' entitlement to depreciation deductions, investment tax credits, and miscellaneous deductions determined; held further, petitioners are liable for additions to tax pursuant to section 6653(a) and additional interest under section 6621(c); held further, respondent's motion for damages pursuant to section 6673 denied.

During the years in issue, petitioner was a full-time gambler who gambled solely for his own account. Held: petitioner's gambling activities constituted a trade or business within the meaning of secs. 62(1) and 162(a), I.R.C. 1954. Commissioner v. Groetzinger,480 U.S. , 107 S.Ct. 980 (1987), followed. Consequently, petitioner is not subject to the alternative minimum tax under sec. 55, I.R.C. 1954.

Petitioner filed a Tax Court petition alleging tax protester type allegations. Held: petitioner did not meet his burden of proving the incorrectness of respondent's determinations of deficiencies and additions to tax under I.R.C. sections 6651(a)(1), 6653(a), 6654 and 6661 for the taxable years 1980 through 1983. Held further, respondent's determinations of deficiencies and additions to tax are sustained.

Held, petitioner not entitled to an award of reasonable litigation costs under sec. 7430 since respondent's position was reasonable. Held: petitioner not entitled to an award of reasonable litigation costs under sec. 7430 since respondent's position was reasonable.

Petitioner wholly owned two subsidiaries to which it made payments; it deducted the payments as premiums for insurance coverage provided by the subsidiaries. Held: Petitioner's payments to its subsidiaries did not constitute insurance premiums and are not deductible by petitioner (except to the extent that the subsidiaries used the premiums to provide insurance from unrelated parties or incurred other expenses in relation to such insurance).

Petitioner's property was leased by the City of Macon for use as a bus terminal from March 1973 until October 1975 when the property was purchased by the Macon-Bibb County Urban Development Authority. Held: petitioner's property was not sold under threat or imminence of condemnation and petitioner is not entitled to defer its gain under sec. 1033.

Petitioner objected to respondent's computations under Rule 155 on several grounds. Held, petitioner conceded the issue of guaranteed payments. Held further, respondent conceded that I.R.C. section 6621(c) is not applicable to the portion of the underpayments attributable to petitioner's failure to include the guaranteed payments in income. Held further, as noted in the Court's opinion at 87 T.C. 983 (1986), it was unnecessary to address the deductibility of miscellaneous expenses claimed by petitioner in light of the Court's finding that the transactions in the case were in substance shams lacking economic significance beyond expected tax benefits. Accordingly, decisions will be entered in accordance with respondent's revised computations.

Held: Petitioner, a full-time gambler for his own account, was in the trade or business of gambling. Petitioner's gambling expenses are not "itemized deductions"; petitioner is not liable for minimum tax. Commissioner v. Groetzinger,480 U.S.    , 107 S. Ct. 980 (1987).

On their returns for 1979 and 1981, Ps claimed deductions for alleged invesments in coal mining properties Held: (1) Ps are not entitled to the deductions claimed for 1979 because they failed to establish that commercially marketable quantities of coal had been disclosed at the time of the alleged expenditures within the meaning of sec. 616(a), I.R.C. 1954. Ps also failed to prove that they actually made an investment in the coal mining property. (2) Ps are not entitled to the deductions claimed for 1981 because they failed to prove that the alleged mining activity was carried on with an objective for economic profit. (3) Additional interest is payable under sec. 6621(c) I.R.C. 1954, because there was a substantial underpayment of tax attributable to a tax motivated transaction. (4) Ps are liable for damages under sec. 6673, I.R.C. 1954, for instituting a proceeding primarily for delay or taking a position which was frivolous or groundless.

Held, respondent's statutory notice of deficiency is valid; petitioner's arguments to the contrary are without merit. Held: respondent's statutory notice of deficiency is valid; petitioner's arguments to the contrary are without merit.

From 1977 through 1983, S a physician beginning her career in medicine, also engaged in horse breeding, training, selling and showing activities. She lost money from these activities in every year. Held: S engaged in the horse-related activities during 1977, 1978, 1979, 1980 and 1981 with the actual and honest objective of making a profit. One of S's horses broke a leg in 1982.

H and W controlled a corporation, T, which operated five truck stops. Held: H and W received dividend income from the cash diverted from the truck stops and from the payments made by T on their behalf. (2) H's contribution to E's capital was made solely to increase his basis in the stock of E. Therefore, H and W are not entitled to the losses attributable to E claimed by them.

A petition was filed with this Court subsequent to the appointment of a receiver in an action commenced by the Securities and Exchange Commission against P (husband) in the United… Held: section 6871(c) provides that no petition for redetermination shall be filed in the Tax Court after appointment of a receiver and, accordingly, we have no jurisdiction with respect to P (husband). Held further, R's Motion to Dismiss for Lack of Jurisdiction as to P (husband) is granted.

Comtex, a California corporation, was formed in 1975. Petitioners and a nonpetitioner owned all the outstanding stock of Comtex. Held: Petitioners are not entitled to any loss deduction as the result of liquidation of Comtex in 1980 because their losses with respect to the Comtex stock must be reduced by the deductions erroneously taken in 1975.

Petitioner reported substantial amounts of income from estimated wagering winnings for 1973 through 1977. For 1973 and 1974, he omitted W-2 wage income. For 1977, he omitted substantial wagering winnings, income from an illegal bingo game operation, and long-term capital gain from a sale of property held in the names of nominees. He was convicted of having committed various crimes relating to gambling in the period between September 1977 and June 1978. He was convicted of excise tax evasion for portions or all of 1977. Held: (1) Respondent has failed to show by clear and convincing evidence that petitioner has an underpayment due to fraud for either 1973 or 1974. (2) Respondent has shown by clear and convincing evidence that petitioner has an underpayment due to fraud for 1977. Sec. 6653(b), I.R.C. 1954.

Respondent used the net worth plus expenditures method of income reconstruction to determine that petitioner had unreported taxable income for each of the years at issue. Held: petitioner had unreported taxable income for each of the years at issue. Held further, petitioner's failure to report that income was due to fraud, and consequently, petitioner is liable for an addition to tax for fraud under sec. 6653(b), I.R.C. 1954, for each year at issue.

P executed special consents (Forms 872-A) extending the statute of limitations for the taxable years 1976 through 1979. Held: P's Motion for Summary Judgment is granted in that the statute of limitations expired with respect to the taxable years 1976 through 1979 prior to the issuance of the March 31, 1987 notice of deficiency. Roszkos v. Commissioner,87 T.C. 1255 (1986), on appeal (9th Cir., July 14, 1987).

Held: A sum paid out of gross estate assets to settle a will contest is not deductible under section 2053 as an administration expense. Held: A sum paid out of gross estate assets to settle a will contest is not deductible under section 2053 as an administration expense.

From 1967 to 1978, petitioner advanced to her son and his wholly owned corporation sums of money which were used in part to purchase business real property. Held: petitioner is liable as a transferee to the extent of the net equity in the property transferred by her son individually to petitioner. Held further, petitioner is not liable as transferee for property transferred by her son's wholly owned corporation. Held further, accrual of interest determined.

Petitioner and her former husband elected on their 1978 income tax return to defer gain on condemnation proceeds received in that year pursuant to section 1033. Held: Petitioner is an innocent spouse under section 6013(e) with respect to gain attributable to husband's share of the proceeds.

Held: Fraud proven by clear and convincing evidence. Held: Fraud proven by clear and convincing evidence.

Held: Purchases of herds of cattle not recognized for tax purposes; fraud addition not proven. Held: Purchases of herds of cattle not recognized for tax purposes; fraud addition not proven.

Held, Ps failed their burden of proving that they were entitled to the charitable deduction claimed.

In the taxable years 1981 and 1982, Ps deducted interest payments in connection with notes payable to a custodian on behalf of their children. Held, Ps did not prove the existence of a bona fide debt. Held further, Ps are not entitled to deduct the interest payments under section 163, I.R.C.Held further, Ps are liable for the additions to tax under sections 6653(a)(1), 6653(a)(2) and 6661.

Held: Respondent's determination that petitioner Nathan Dolin received income in his capacity as general partner sustained. Held: Respondent's determination that petitioner Nathan Dolin received income in his capacity as general partner sustained. Held further, petitioners are entitled to a deduction in 1981 in the amount of $ 108,000 for payment for investment advice.

Decedent died testate on April 22, 1982, survived by his wife and three children. Held: the formula marital deduction provision in decedent's will is not a formula within the meaning of sec. 403(e)(3), Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 305. Consequently, that statute does not preclude petitioner from qualifying for an unlimited marital deduction under I.R.C. sec. 2056.

Held: Language of a series of restricted consents interpreted in respondent's favor. Held: Language of a series of restricted consents interpreted in respondent's favor.

Respondent, using the bank deposits and cash expenditures methods of income reconstruction, determined that petitioners, husband and wife, had unreported income from the husband's currency exchange business. Held: petitioners have proven that $ 300,000 of deposits were from nontaxable sources; petitioners have also proven that some expenditures were made from nontaxable sources. Held further, petitioners are liable for an addition to tax under section 6653(a). Held further, petitioners have not carried their burden of proof as to remaining issues. Held further, petitioner-wife is entitled to innocent spouse relief under section 6013(e).

R sent separate notices of deficiency to P for 1980 and 1981, neither of which was received by P; no timely petition was filed. Held: The notice for 1980 sent by the Los Angeles District Office was not sent to P's last known address. P had filed an amended return for 1980 with the Fresno Service Center showing a new address in Illinois.

1. Petitioner's fur trading activity was a business, not a hobby. 2. Furs sent by petitioner to Seattle Fur Exchange for sale on consignment were includible in petitioner's inventory. 3. Petitioner failed to prove error in respondent's determination of value of the inventories. 4. Petitioner failed to prove that he was entitled to deduct business expenses in excess of those allowed by respondent. 5.