Volume 59 — Tax Court Memorandum

Respondent filed an amendment to answer after petitioners had made admissions during discovery on original pleadings. Held: petitioners have failed to show that competing evidence would be presented at trial which would aid in determination of the merits of the case, and respondent has shown that he would be prejudiced by withdrawal of the admissions, so the motion is denied.

Petitioner was the sole beneficiary of a complex trust. The trust made a $ 50,000 distribution out of trust income to petitioner. In addition, for tax accounting purposes the trust acted as though it was a partnership and "allocated" a portion of its distributable share of partnership losses to petitioner. Petitioner claimed a deduction for the partnership losses "allocated" to him, although those same losses had been previously deducted from the trust's gross income. Pursuant to Maring v. Commissioner, T.C. Memo. 1988-469, respondent disallowed a portion of the "allocated" partnership losses claimed by petitioner. Held: Petitioner failed to prove that the disallowed loss was not included in the "allocated" partnership losses for which he claimed a deduction. Therefore, respondent's determination of deficiency is upheld. Held further: Because no express statutory authority exists entitling beneficiaries to claim a deduction for partnership losses already deducted from a trust's gross income, petitioner's claim of such a deduction would normally constitute a prohibited double deduction. However, respondent did not place petitioner's deduction of "allocated" partnership losses in issue and the net effect of the manner in which petitioner treated the distribution and the "allocation" from the trust was that petitioner did not receive the benefit of a double deduction. Held further: Petitioner is liable for an addition to tax pursuant to sec. 6651(a)(1) for failure to timely file his return.

Held, on the facts Ps are not entitled to a deduction for development expenditures under I.R.C. section 616. Held further, increased interest attributable to tax-motivated transaction determined. Held: on the facts Ps are not entitled to a deduction for development expenditures under I.R.C. section 616. Held further, increased interest attributable to tax-motivated transaction determined. I.R.C. section 6621(c).

Held, P is liable for additions to tax under I.R.C. sections 6651(a)(1), 6653(a), 6653(a)(1), 6653(a)(2), 6654 and 6661(a). Held: P is liable for additions to tax under I.R.C. sections 6651(a)(1), 6653(a), 6653(a)(1), 6653(a)(2), 6654 and 6661(a).

P was a barter exchange. P issued trade units to acquire property from members. Held: P is taxable on (1) membership fees and dues, (2) commissions, (3) payments received in connection with the sale of trade units to a member, and (4) the fair market value of property received from members in exchange for the issuance of trade units (reduced by the fair market value of property sold to members in exchange for the…

Held: Petitioners' motion for summary judgment will be denied. Held: Petitioners' motion for summary judgment will be denied.

Held: Respondent's motion for summary judgment will be granted with respect to the section 6654 addition to tax for 1983. Held: Respondent's motion for summary judgment will be granted with respect to the section 6654 addition to tax for 1983.

Held: Negligence addition not sustained. Held: Negligence addition not sustained.

Held: A valid election under section 172(b)(3)(C) to forgo the carryback of a net operating loss was made. Held: A valid election under section 172(b)(3)(C) to forgo the carryback of a net operating loss was made.

Ps timely filed their 1981 Federal income tax return bearing address A. In July 1984, Ps moved to address B. In September 1984, and January 1985, Ps respectively mailed the third and… Held: The crossing out of address A appearing on Forms 1040-ES in September 1984, and January 1985, and the typing in of address B thereon constituted clear and concise notice of Ps' change of address. Respondent did not mail the notice of deficiency to Ps' last known address (address B).

In 1985 petitioner obtained certifications from state agencies that certain of its employees hired prior to 1983 were eligible for welfare assistance prior to… Held: the parties' stipulation as to the interpretation of the Code sections at issue is ineffective to bind the Court as it is a stipulation as to a question of law. Held further, petitioner does not satisfy the certification requirement under section 51(d)(15) of the Targeted Jobs Credit, as amended by ERTA.

Respondent issued a Notice of Final Partnership Administrative Adjustment to petitioner-partnership and statutory notices of deficiency to the individual petitioners. Held: petitioners have failed to prove either the false representations or the adverse effects necessary to justify the imposition of estoppel.

P's partnership purchased section 38 property which was later transferred to a corporation formed by the partners. Held: A partnership may transfer section 38 property to a corporation, the effect of which is a mere change in the form of conducting business which does not result in recapture of investment tax credit. Borgic v. Commissioner, 86 T.C. 643 (1986), followed.

Held: Petitioners' farming activity is an activity not engaged in for profit. Accordingly, petitioners are entitled only to those deductions allowable under section 183(b). Held: Petitioners' farming activity is an activity not engaged in for profit. Accordingly, petitioners are entitled only to those deductions allowable under section 183(b). Held further: Petitioners are not entitled to investment tax credits in the years 1982 through 1986.

Petitioner's principal place of employment was the Newark Police Department. Petitioner at the same time held two part-time jobs as a security guard. Held: Unreported income determined. Held further: Petitioner is not entitled to deductions for alleged payments of interest, taxes, and contributions. Held further: Petitioner was in the trade or business of being an employee. Held further: Petitioner is entitled to deductions for automobile expenses.

P invested in an electrical power generating windmill system offered in a windpark promotion by C. R audited the promotion, prepared engineering reports on the windmill system, and disallowed all P's… Held: the participation of R's district counsel in an appeals, counsel, and examination (ACE) meeting did not constitute mere broadbrush involvement under section 7430(c)(4)(B), but was administrative action or inaction by district counsel upon which this proceeding was based.

Held: Petitioners are not entitled to a theft loss deduction for partnership income never reported as income or added to partnership interest basis. Held: Petitioners are not entitled to a theft loss deduction for partnership income never reported as income or added to partnership interest basis. Held further: Petitioners are not entitled to a bad debt deduction for partnership income never reported as income or included in partnership interest basis.

Held: Respondent will not be allowed to amend his answer in order to raise a new issue which was brought to petitioner's attention for the first time at the commencement of trial. Held: Respondent will not be allowed to amend his answer in order to raise a new issue which was brought to petitioner's attention for the first time at the commencement of trial.

Petitioner was the majority shareholder and president of Corporation E. Corporation E was dependent upon sales to two major customers with whom it had no purchasing agreements. In order to reduce Corporation E's dependence on those customers, petitioner formed Corporation M which petitioner caused to acquire a chain of restaurants and become a captive customer of Corporation E. Petitioner guaranteed the promissory notes Corporation M issued in connection with the purchase of the restaurant chain. Corporation M was not successful and petitioner made payments on the notes as guarantor. Held: Petitioner's dominant motivation for guaranteeing the obligations of Corporation M was to preserve his investment in Corporation E rather than to protect his business of being an employee of Corporation E. Held further: Petitioner's payment as guarantor gave rise to a loss attributable to a nonbusiness bad debt, deductible as a short-term capital loss pursuant to section 166(d). Held further: Petitioners are liable for the addition to tax for a substantial understatement of income tax pursuant to section 6661.

P was married to S throughout the years in issue (1980-1984); they resided in a community property state. Held: with respect to 1980 and 1981, respondent presented insufficient evidence to support an inference that either P or S was involved in income-producing illegal activities. Respondent's deficiency determinations for such years are arbitrarily derived.

R filed a motion for summary judgment based on allegations deemed admitted under Rule 37(c), Tax Court Rules of Practice and Procedure. Held: R's motion for summary judgment will be granted as to the deficiency determinations and additions to tax for fraud under I.R.C. section 6653(b)(1) and 6653(b)(2). Doncaster v. Commissioner, 77 T.C. 334 (1981), followed.

Ps filed their petition more than 90 days after R mailed a notice of deficiency for Ps' 1985 and 1986 taxable years. R mailed the notice of deficiency to the address shown on Ps' 1985 and 1986 returns even though R had received Ps' 1987 return reporting a new address 67 days prior to mailing the notice. R did not place the new address information into his computer until 105 days after receipt. Ps and R filed cross motions seeking a dismissal for lack of jurisdiction. Ps argue for a zero-tolerance standard to be placed upon R's inclusion of new address information into the computer. R argues that his actions here constituted "reasonable care and diligence" because they were performed within his procedures for processing new address information. Held: Ps' motion to dismiss for lack of jurisdiction granted for failure of R to show that his established procedures and guidelines for placing new addresses into the computer constitute "reasonable care and diligence" in the setting of this case.

Held: Deficiencies redetermined; fraud addition found under doctrine of collateral estoppel. Held: Deficiencies redetermined; fraud addition found under doctrine of collateral estoppel.

Respondent claimed increased deficiencies by amendments to answers. Held: (1) The Court has jurisdiction over the disputes as to these increased deficiencies. Sec. 6214(a), I.R.C. 1954. Held: The Court has jurisdiction over the disputes as to these increased deficiencies. Sec. 6214(a), I.R.C. 1954. The burden of proof is on respondent as to these items. During 1975 and 1976 petitioner-husband (Lipps) owned substantially all of corporations ARI and JLI.

Held: Petitioner's motion for reconsideration of our opinion with respect to cross motions for summary judgment will be denied.

Held: Petitioner was a personal holding company within the meaning of section 542(a) during the taxable year in issue and is, therefore, subject to the personal holding company tax imposed under… Held: Petitioner was a personal holding company within the meaning of section 542(a) during the taxable year in issue and is, therefore, subject to the personal holding company tax imposed under section 541.