Volume 58 — Tax Court Memorandum

Held: Amounts of unreported income from fraudulent scheme redetermined. Fraud addition sustained. Held: Amounts of unreported income from fraudulent scheme redetermined. Fraud addition sustained.

Ps claimed losses through partnerships which were to purchase lots from I. The losses consisted of advanced sales commissions and selling expenses of I's subsidiary which was to resell the lots at… Held: partnerships did not have profit objective. Held further, Ps not entitled to claimed losses. Held further, certain Ps liable for additions to tax under section 6653(a), I.R.C. 1954.

Sierra is a limited partnership. Micro and First Technology are general partners of Sierra with identical profits interests. R issued an FPAA for the taxable year 1983 to Sierra. The FPAA was mailed to "Tax Matters Partner, Sierra Design Research and Development" and copies were sent to the notice partners of Sierra. Within 90 days of issuance of the FPAA, Micro filed a petition as tax matters partner. Within 60 days after the close of the 90-day period, a 5-percent notice group of partners filed a petition. R also issued an FPAA to "Tax Matters Partner, Sierra Design and Research Development" for the taxable years 1984 and 1985. A duplicate FPAA was issued to Kelly as "Tax Matters Partner." Copies of the FPAA were sent to the notice partners of Sierra. Kelly filed a petition within 90 days of issuance of the FPAA. Within 60 days after the close of the 90-day period, a 5-percent notice group of partners filed a petition. Held: Since Sierra did not designate a tax matters partner and since the two general partners (Micro and First Technology) had identical profits interests, First Technology, the general partner whose name would first appear in an alphabetical listing, is the tax matters partner. Consequently, the petition filed by Mircro must be dismissed for lack of jurisdiction since Micro was not the tax matters partner. Sec. 6226(c), I.R.C. 1986. Held further: That the petition filed by the 5-percent notice group with respect to the 1983 taxable year should go forward since no petition was filed by the tax matters partner. Sec. 6226(b)(1), I.R.C. 1986. Held further: Kelly, a limited partner, is not entitled to file a petition as tax matters partner with respect to an FPAA issued for the 1984 and 1985 tax years. Although respondent mailed the FPAA to Kelly as "Tax Matters Partner," Kelly was not a general partner nor was he selected by the Secretary as tax matters partner. Sec. 6231(a)(7), I.R.C. 1986.

Held, P did not file a petition with this Court within 90 days after the notice of deficiency was mailed. I.R.C. section 6213(a). R's motion to dismiss for lack of jurisdiction is granted. Held: P did not file a petition with this Court within 90 days after the notice of deficiency was mailed. I.R.C. section 6213(a). R's motion to dismiss for lack of jurisdiction is granted.

Petitioner husband was a limited partner in a partnership formed to purchase the rights to certain computer software designed for internal… Held: The partnership did not engage in a trade or business with an actual and honest objective of making a profit. (2) Petitioners are not entitled to claim depreciation or investment credit for the computer software. (3) Substantially all of the resulting deficiency is an underpayment attributable to a tax motivated transaction.

Held: Petitioners' motions for reconsideration of our prior holding concerning adequacy of consideration for transferee liability purposes is denied. Held: Petitioners' motions for reconsideration of our prior holding concerning adequacy of consideration for transferee liability purposes is denied.

Held: Values of pre-Columbian art objects redetermined for charitable contribution purposes. Held: Values of pre-Columbian art objects redetermined for charitable contribution purposes.

The Court of Appeals for the Seventh Circuit reversed and remanded the opinion of this Court at 89 T.C. 896. Held: that the notice of deficiency in docket No. 30402-84 was in error in that sec. 6867, I.R.C., does not apply to corporations; further held, that the statute did apply to petitioner in docket No. 30420-84. Amounts of deficiency determined.

H, Jr., and H, Sr., owned stock in the Chicago Bears, Inc. H, Jr., died in 1979. In 1981, the Chicago Bears was reorganized. H, Sr., transferred his stock to the H Family Holding Company. H, Sr., died in 1983. In 1988, the Chicago Bears purchased stock from the estate of H, Jr. The stock was appraised by three appraisers. W, one of the appraisers, was employed jointly by the estate of H, Jr., and by the Chicago Bears. One of the issues in this case is the fair market value of the shares of the H Family Holding Co. R seeks to employ W to provide an expert opinion. P filed a motion in limine seeking a ruling that it was a conflict of interest for W to provide an expert opinion on behalf of R. Held: W was not previously employed by P nor did W provide an opinion as to the stock of the H Family Holding Co. Held: There is no conflict of interest in R's employing W as an expert witness.

Son, fearing that his ex-wife and children might take his house from him, inspired a series of deeds to the house to and from his parents and attorney. Held: The value of the house is includable in the value of decedent's gross estate. Sec. 2033, I.R.C. 1954.

Ps were targeted for grand jury investigation in 1980. In 1984 and 1985, Ps pleaded guilty to various counts of grand jury indictments. Held: the records in issue are not matters occurring before the grand jury within the meaning of Rule 6(e), Federal Rules of Criminal Procedure. United States v. Interstate Dress Carriers, 280 F.2d 52 (2d Cir. 1960), followed. Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), applied.

Held, R correctly determined that Ps are liable for additions to tax under I.R.C. sections 6653(a)(1) and (2). Held: R correctly determined that Ps are liable for additions to tax under I.R.C. sections 6653(a)(1) and (2).

Over $ 230,000 in cash found in a trash bag in P's automobile was seized by the New Mexico State Police in Mar. 1986. Held: R properly issued the notice of deficiency to P as possessor of certain cash since P initially denied ownership of the cash. Sec. 6867, I.R.C. 1986. Held further: P is not entitled to file a petition in his individual capacity since the notice of deficiency was properly issued to P as possessor of certain cash.

In year one, P1 formed P2, a C corporation, and was its sole shareholder. In year one, P2 built an apartment complex and rented the complex for four years. Held: P2 did not execute a deed conveying ownership in the apartment complex to P1 in year one, so P2 was the owner of the complex. Held further: P2 will not be disregarded as a taxable entity because it had a valid business purpose and conducted business activities.

Held, Ps' motion to amend petition is denied.

P is a charitable trust created to provide assistance to the needy aged of Washington State. Held: Since P is not operated in connection with a publicly supported charity as required by sec. 509(a)(3)(B) and sec. 1.509(a)-4(1), Income Tax Regs., P is not a supporting organization within the meaning of sec. 509(a)(3) and is therefore a private foundation.

Held: Petitioner is not entitled to deductions for interest expense on loans which are not recognized for tax purposes. Held further: Petitioner is liable for additions to tax for fraud pursuant to section 6653(b)(1) and (2).

Z is a purported church organized, incorporated and operated for purposes of smuggling into this country, and distributing, illegal drugs for profit. Held: activities conducted by persons affiliated with Z prior to Z's incorporation are not activities attributable to Z. Held further: Z is not a tax exempt organization under section 501(c)(3). Held further: R correctly determined the amount of Z's taxable income for the periods from the date of Z's incorporation through 1977.

Held, P's deemed stipulations of fact under Rule 91(f)(3), Tax Court Rules of Practice and Procedure, are sufficient to satisfy R's burden of proving fraud within the meaning of section 6653(b),… Held: P's deemed stipulations of fact under Rule 91(f)(3), Tax Court Rules of Practice and Procedure, are sufficient to satisfy R's burden of proving fraud within the meaning of section 6653(b), I.R.C. 1954.

During 1984, RTE, Inc., was the sole general partner of Utah Bio, a partnership. Held: the petition was not filed timely under section 6226(a) or (b), and accordingly this matter must be dismissed for lack of jurisdiction. Held further: that respondent properly issued a generic FPAA for 1984 to the address shown on Utah Bio's 1984 return in the absence of any additional information furnished pursuant to section 6223(c).

P was employed by Bell Labs as a systems engineer. P received two cash awards in 1985 from Bell Labs. The first award of $ 5,000 was in recognition of a sustained history of outstanding achievements. Held: The awards were given to P by his employer in connection with his employment as compensation for P's services and are not excludable under section 74(b).

Held, Ps' deemed admissions and stipulations are sufficient to satisfy R's burden of proving fraud under section 6653(b), I.R.C. 1954.

CINB, a bank wholly owned by petitioner, extended loans to borrowers pursuant to loan agreements which provided an interest rate cap, but called for… Held: Respondent's determination under section 446(b) is sustained, and interest income must be accrued on such loans at the floating rate at which borrowers made interest payments. Held further: Respondent's determination under section 481, relating to adjustments required by changes in accounting method, is sustained.

Held, R's motion for judgment on the pleadings is granted. Ps are liable for the deficiency in and additions to tax determined by respondent. Held: R's motion for judgment on the pleadings is granted. Ps are liable for the deficiency in and additions to tax determined by respondent. Held further, damages in the amount of $ 5,000 are awarded to the United States pursuant to I.R.C. section 6673.

Ps claimed deductions and investment tax credits in connection with a motion picture through their interests as limited partners in a partnership. Held: Ps' motion for relief under Rule 91(e), Tax Court Rules of Practice and Procedure, is denied. Held further, the partnership did not acquire a depreciable interest in the motion picture but purchased an intangible contract right to payments contingent on the success of the motion picture.

On the date the notice of deficiency was mailed P's last known address was 34 Paerdegat 10 Street, Brooklyn, N.Y. 11236. Held: in these circumstances, the notice was mailed to P's last known address within the intendment of sec. 6212(b)(1). Held further, the petition was not timely filed. Secs. 6213(a) and 7502.

Petitioners moved to dismiss for lack of jurisdiction on grounds that the notice of final partnership administrative adjustment was invalid because it was issued after expiration of the period of… Held: the timeliness of the notice of final partnership administrative adjustment is not relevant to the jurisdiction of the Court under section 6226, so petitioner's motion is denied.

Ps incurred a legal expense for estate planning services. Held, 20 percent of the legal expense is deductible as tax advice under I.R.C. section 212(3). Held: 20 percent of the legal expense is deductible as tax advice under I.R.C. section 212(3). Merians v. Commissioner, 60 T.C. 187 (1973), followed. Held further, Ps have failed to establish that any portion of the legal expense is deductible under I.R.C. sections 162(a), 212(1) or 212(2).

Ps were engaged in a horse-breeding activity. Ps incurred losses in the activity for 21 consecutive years. Held: Ps did not engage in the activity for profit within the meaning of I.R.C. section 183(a).

Held: Respondent's motion for summary judgment will be granted in part. Held: Respondent's motion for summary judgment will be granted in part.

Held: For purposes of clarification, and to a limited extent only, we amend the wording in our opinion in Sly v. Commissioner, T.C. Memo. 1989-385. Held: For purposes of clarification, and to a limited extent only, we amend the wording in our opinion in Sly v. Commissioner, T.C. Memo. 1989-385. In all other respects petitioners' motion to reconsider is denied.

Respondent determined that petitioner had unreported income from the sale of narcotics during 1984. Held: The usual presumption of correctness attaches to respondent's determination because such determination was not shown to be arbitrary and excessive.

R allowed P a tentative new jobs credit of $ 100,000 for 1977. Held: the base for computing the 50-percent addition to tax for fraud is undiminished by any subsequent carryback. Petterson v. Commissioner, 19 T.C. 486 (1952), followed. Held further, P does not have the option of carrying the new jobs credit forward where sec. 53(c), I.R.C., requires that it be carried back.

P, a professional guitarist, maintained a home office which he used exclusively and regularly in his business as a musician. Held: under all of the facts and circumstances, P's home office was his principal place of business with respect to his business as a musician. Soliman v. Commissioner, 94 T.C. (1990), followed.

From 1970 to at least 1985, petitioners owned and operated a farm. Held: Petitioners engaged in their farming activity with an actual and honest objective of making a profit, and are thus entitled to deduct their farming losses (sec. 183, I.R.C. 1954) as well as take investment credits (sec. 38, I.R.C. 1954) for 1981 and 1982.

Ps filed a petition with this Court 440 days after the notice of deficiency was mailed. R moved to dismiss the petition in this proceeding for lack of jurisdiction. Held: Ps failed to prove that they timely filed a petition in this case. Accordingly, R's motion to dismiss for lack of jurisdiction is granted.

Held: Amounts of income received from drug smuggling in 1982 and 1983 determined. Fraud addition sustained.

Held: Petitioners are not entitled to deduct a partnership loss arising from a partnership's claimed deductions relating to a sale/leaseback of computer… Held: Petitioners are not entitled to deduct a partnership loss arising from a partnership's claimed deductions relating to a sale/leaseback of computer equipment. The partnership did not acquire sufficient benefits and burdens of ownership to be treated as the owner of the computer equipment for Federal tax purposes.

Held: Petitioner found to be an innocent spouse. Held: Petitioner found to be an innocent spouse.