Volume 62 — Tax Court Memorandum

Held: Petitioner is required to capitalize rather than expense reforestation expenses and, therefore, petitioner is entitled to the investment tax credit for the years in issue as provided by… Held: Petitioner is required to capitalize rather than expense reforestation expenses and, therefore, petitioner is entitled to the investment tax credit for the years in issue as provided by respondent in the statutory notice of deficiency.

Held: Petitioner has failed to meet his burden of proving unsubstantiated expenses and conceded other issues. Held Further: Petitioner is not liable for additions to tax under section 6653(a). Held: Petitioner has failed to meet his burden of proving unsubstantiated expenses and conceded other issues. Held Further: Petitioner is not liable for additions to tax under section 6653(a).

The estate tax return was filed more than nine months after the date of decedent's death. The co-executors relied on their accountant to file the return. Held: Petitioner is liable for the addition to tax pursuant to section 6651(a)(1). Held further: The Tax Court lacks jurisdiction to redetermine the amount assessed under section 6651(a)(3).

Held: One petitioner, as an individual and as a transferee, is liable for additions to tax under section 6653(b). Held further: Statute of limitations is open for years at issue. Held: One petitioner, as an individual and as a transferee, is liable for additions to tax under section 6653(b). Held further: Statute of limitations is open for years at issue. Held further: Bonus constitutes taxable income in 1981 to individual petitioners.

Held: Petitioner's income from illegal drug sales in 1979 determined. Held further, additions to tax under sections 6651(a)(1) and 6653(a) upheld.

Petitioner failed to timely file Federal income tax returns for the taxable years 1983 through 1986. During the trial, petitioner filed income tax returns for the years in issue. Petitioner claimed business expenses on Schedule C of these returns. During the trial, petitioner's counsel stated that petitioner had changed his position with respect to these expenses and claimed that he was entitled to capital losses for these expenses. Held: Respondent's evidentiary objections are not sustained. Held further: Petitioner is not entitled to a loss for these expenses. Held further: Petitioner is liable for additions to tax pursuant to sections 6651(a)(1), 6653(a)(1) and (2), 6654, and 6661.

Brief amicus curiae was filed by Wayne S. Kaplan and Thomas C. Durham, on behalf of Cargill, Incorporated.

Ps were involved in drug and gambling activities during some of the years 1977 through 1981. Ps expended large sums of money during 1977, 1978, 1980, and 1981. During 1980, P, Jamiel Chagra, gambled extensively in Las Vegas winning and losing large sums of money. Both Ps were ultimately incarcerated upon their conviction for various felonies. (Jamiel Chagra was convicted of various drug related crimes and Elizabeth Chagra was convicted of conspiracy to obstruct justice and conspiracy to murder a Federal Judge.) Ps failed to report all their income from gambling and drug activities for some of the years in issue. Ps also failed to keep records of their income-producing activities for some of the years in issue. R reconstructed Ps' income by use of the source and expenditure of funds method for 1977, 1978, 1980 and 1981. R utilized the specific item method for 1979, relying on a newspaper article referring to P's gambling activities. R also determined that the underpayment of tax for the taxable years in issue was due to fraud under sec. 6653(b), I.R.C. Held: 1. Ps' income redetermined for the taxable years 1977, 1978, 1980, and 1981. 2. R's determination for 1979 was arbitrary and capricious and R failed to satisfy his burden of going forward with the evidence as to the existence of unreported income. 3. The underpayment of tax for the taxable years 1977, 1978, and 1980 was due to fraud within the meaning of sec. 6653(b), I.R.C. 4. Respondent failed to prove that the underpayment of tax for 1979 was due to fraud. 5. Respondent failed to prove that the underpayment of tax for 1981 was due to fraud. 6. R's determination as to disallowed deductions for 1978 through 1981 are sustained.

P, an accrual method taxpayer, is a savings and loan association who made original home mortgage loans to borrowers. Held: absent an agreement between the parties to finance the points, when a borrower brings separate funds to closing sufficient to satisfy closing costs and points, the loan is a nondiscounted loan and P must recognize points it receives in the year the transaction closes.

P, a qualified heir, received ranch property subject to a special use valuation election pursuant to I.R.C. sec. 2032A. P leased the ranchland to her son for $ 2 per acre. Held: P ceased to use the property for its qualified use and is liable for additional Federal estate tax imposed by I.R.C. sec. 2032A(c). Williamson v. Commissioner, 93 T.C. 242 (1989), followed. Held further, P is liable for the addition to tax imposed by I.R.C. sec. 6651(a)(1).

P, an airline pilot, settled a lawsuit brought against his employer under the Age Discrimination in Employment Act. Held: both the back pay and the liquidated damages are excludable from income under I.R.C. sec. 104(a)(2). Downey v. Commissioner, 97 T.C. 150 (1991), followed.

Held: Petitioner is relieved of liability for part of the deficiency for the 1981 taxable year under the provisions of sec. 6013(e). Held: Petitioner is relieved of liability for part of the deficiency for the 1981 taxable year under the provisions of sec. 6013(e).

Held: Petitioner is relieved of liability for part of the deficiency for the 1981 taxable year under the provisions of sec. 6013(e). Held: Petitioner is relieved of liability for part of the deficiency for the 1981 taxable year under the provisions of sec. 6013(e).

Held: Respondent's Motion for Partial Summary Judgment will be granted. Held: Respondent's Motion for Partial Summary Judgment will be granted.

C, a wholly-owned subsidiary of P, resolved to adopt a plan of complete liquidation and to sell its sole asset, an apartment complex, in exchange for $ 1,100,000 in cash and a $ 500,000 note. Held: C realized and recognized gain on the sale of its apartment complex pursuant to I.R.C. sec. 337(c)(2)(A). Held further, P is liable as transferee for the tax due on the gain recognized by C.

Ps filed a motion for reasonable litigation costs pursuant to I.R.C. sec. 7430. Held, Ps were not a prevailing party because Ps failed to show that R acted in an unreasonable manner in the relevant proceedings.

During years in issue, petitioners paid amounts to William T. Irwin purportedly for investment in commodity transactions through foreign… Held: The commodity transactions purportedly carried out through foreign entities were a factual sham and the losses claimed from such transactions are disallowed. 2. The additions to tax for negligence are sustained as to petitioners Amsler. 3. The increased interest on deficiencies attributable to tax motivated transactions is sustained.

Petitioners allege that respondent violated petitioners' constitutional rights in gathering information during an examination of petitioners' returns for various years. Held: petitioners' motions will be denied; respondent's discovery motions will be granted.

Held: Dismissed for lack of prosecution. Held: Dismissed for lack of prosecution.

Held: Dismissed for lack of prosecution. Held: Dismissed for lack of prosecution.

R issued a statutory notice of deficiency to P while P was in chapter 11 bankruptcy. After P filed his petition with the Court, R moved to dismiss for lack of jurisdiction. Held: the automatic stay was lifted the date the order confirming the plan of reorganization was entered. Held further, the petition was not timely filed.

P filed false Forms W-4 claiming exemption from Federal income tax and failed to file Federal income tax returns for the taxable years 1981 through 1986. P claims that his wages are not income. Held, P is liable for the deficiencies as set forth in R's notice of deficiency. Held further, P is liable for the additions to tax for fraud as set forth in the notice of deficiency. Held further, P is liable for the additions to tax for failing to file estimated tax with proper adjustments to reflect any withholding credits to which P is entitled under I.R.C. sec. 31. Held further, petitioner is liable for additions to tax for negligence and for failing to file a timely return for the taxable year 1981. Held further, R's motion for a penalty pursuant to I.R.C. sec. 6673 is granted.

R issued a notice of deficiency to P determining deficiencies in and additions to P's Federal income tax for the taxable years 1982 and 1983 after P failed to file tax returns for those years. Held: P is not an innocent spouse as defined in I.R.C. sec. 66(c) and is liable for the deficiencies in issue. Held further, P is liable for the additions to tax as set forth in the notice of deficiency.

Petitioner was a senior partner in a law partnership. The partnership was dissolved when other partners voted to dissolve the partnership and to continue the partnership business without petitioner. Held: the payments to petitioner were payments made in liquidation of his interest in the dissolved partnership rather than on a sale of that interest. The consequences to petitioners of those payments are determined under sec. 736, I.R.C. 1954, rather than sec. 741, I.R.C. 1954.

Commencing in 1979, P made cash advances to his brother-in-law, M, for the purchase of a restaurant business. Held: P failed to establish that amounts M owed to P for prior cash advances are properly included in his cost basis. Held further , P has established that his cost basis in the property includes amounts he paid on the first and second mortgages.

P is a United States corporation operating worldwide in the business of manufacturing and selling power tools and other products. Held: petitioner's worthless stock loss is allocable to the dividend class of gross income. Sec. 1.861-8(a)(2), Income Tax Regs.Held further, the worthless stock loss is allocable against petitioner's foreign source income. Sec. 1.861-8(e)(7)(i), Income Tax Regs.

P filed his 1979 Federal income tax return in 1988, claiming an overpayment for taxes paid on April 15, 1980. Held: under section 6512(b)(3)(C), taxes paid more than 3 years from the time the return is filed and more than 2 years from the time the tax was paid are not subject to credit or refund.

Pursuant to this Court's opinion in Eastern States Casualty Agency, Inc. v. Commissioner, 96 T.C. 773 (1991), the Court issued an order denying P's motion to dismiss for lack of jurisdiction. Held: P's motion will be denied.

Ps, husband and wife, filed delinquent, joint Federal income tax returns for the taxable years 1982 and 1983 in which they failed to report community income. In addition, P wife failed to file a tax return for the taxable year 1984. P husband conceded the deficiencies and additions to tax as set forth in R's deficiency notice. P wife contends that the deficiencies and additions to tax determined by R are in error. In the alternative, P wife claims that she is entitled to relief as an innocent spouse under I.R.C. sections 66(c) and 6013(e). Held, P wife failed to prove that the deficiencies and additions to tax as determined by R are incorrect. Held further, P wife is entitled to innocent spouse relief under I.R.C. section 6013(e) for the taxable years 1982 and 1983. Held further, P wife is entitled to innocent spouse relief for the taxable year 1984 under I.R.C. section 66(c), except to the extent P wife failed to report wages she earned during that year.

R mailed Ps a Form 872 (Consent to Extend the Time to Assess Tax) for the taxable year 1984 under the cover of a letter which stated that the audit would be… Held: the parties did not mutually agree as to the terms of the Form 872, and therefore it is invalid. Held further, the period of limitations for the taxable year 1984 expired prior to the time R issued the deficiency notice for that year, and thus Ps are not liable for deficiencies or additions to tax for 1984.

P personally guaranteed a loan from a bank to his wholly owned corporation. Three years later, in an effort to meet the corporation's expenses, P also guaranteed another loan to the corporation. Held: the loan from the bank to the corporation was a nonbusiness bad debt because P guaranteed the loan to protect his investment. United States v. Generes, 405 U.S. 93, 31 L. Ed. 2d 62, 92 S. Ct. 827 (1972).

Petitioner Erwin Starr, a retired businessman and an active investor, engaged in six series of futures straddles during 1978-80. Held: Petitioners have failed to meet their burden of proof in showing that petitioner Erwin Starr entered into the straddles at issue primarily for profit within the meaning of sec. 108(a) of the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 494, 630-631, as amended by the Tax Reform Act of 1986, Pub.

Petitioner, an Alaskan native, received $ 21,000 for the sale of land which the Bureau of Indian Affairs (BIA) oversees for Alaskan natives. Held: the $ 41,253.69 is taxable income to petitioner. P argues alternatively that the statute of limitations bars the assessment on the grounds that petitioner constructively received the proceeds in years now barred. Held further, there was no earlier constructive receipt of the payment.

Held: Petitioners' interests in a computer leasing program or in the computer equipment are partnership interests rather than those of joint owners. Held: Petitioners' interests in a computer leasing program or in the computer equipment are partnership interests rather than those of joint owners.