Volume 65 — Tax Court Memorandum

P, an insurance company, was required to maintain a minimum reserve for its universal life insurance policies equal to the cash surrender value of the policies. Held: the 8G reserve represents an amount necessary to satisfy obligations arising under P's insurance contracts as described in section 810(c)(3), I.R.C., and thus is to be considered in computing P's deduction for increased reserves under sec. 809(d)(2), I.R.C.

Petitioner made payments to Pre-Paid Legal Services, Inc. (Pre-Paid), to buy the right to receive 5 years' premium income on legal service contracts issued by Pre-Paid to clients in 1984 and… Held: Petitioner did not have substantial authority for the position taken on his tax returns. 2. Held, further: Petitioner did not adequately disclose his position on his tax returns. 3. Held, further: Respondent did not abuse her discretion in failing to waive the additions to tax. 4.

P filed a motion to vacate decision. P, relying on Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), argued that the notice of deficiency was invalid because R failed to make the requisite… Held: The notice of deficiency is valid.

R determined deficiencies and additions to tax against Ps with respect to deductions claimed for charitable contributions made to their congregation of the Universal Life Church. Held: The assessment and collection of R's deficiency determinations are not barred by the statute of limitations since R has established, by clear and convincing evidence, that Ps intentionally sought to avoid the payment of taxes known to be owing. 2.

P was involved in the real estate development business. P assisted A, through a partnership, in achieving the necessary financing to purchase the Baptist Road truck stop, from which P's partnership received rent. P and A formed a corporation, SH&A, to purchase two other truck stops, Barstow and Fountain, from S. P made subsequent advances to A to meet the expenses of Baptist Road and Barstow. P also incurred obligations on behalf of Baptist Road and made payments to S pursuant to a settlement agreement. Held, advances made to and obligations incurred on behalf of Baptist Road qualified as business bad debts under sec. 166, I.R.C.Held further, advances made to Barstow and settlement payments made to S were investment oriented and thus did not qualify for deduction as business bad debts under sec. 166, I.R.C.Held further, P's initial contribution to SH&A did not qualify for deduction under sec. 1244, I.R.C., as a loss from small business stock nor for deduction under sec. 166, I.R.C., as a business bad debt.

P, a corporation, established a pension plan in 1980. Held: P exhausted administrative remedies within the Internal Revenue Service; thus, the Court has jurisdiction under sec. 7476, I.R.C., to make a declaratory judgment on the qualification of the pension plan under sec. 401(a), I.R.C., and the tax exemption of the trust under sec. 501(a) I.R.C. 2.

R determined deficiencies and additions to tax against Ps in part on account of $ 600,000 of discharge of indebtedness income realized to… Held: $ 600,000 of discharge of indebtedness income was recognized to the S corporation since, under the facts and circumstances presented, the filing of a satisfaction of mortgage by the mortgagee-creditor with respect to two of three properties securing the underlying note had the effect, under Florida law, of discharging that note. 2.

W, D's spouse and executor of D's estate, filed gift tax returns showing that no tax was due upon D's transfer of 60 percent of the stock in his wholly owned corporation to two of his children in… Held: R has failed to prove by clear and convincing evidence fraud on the part of either D or W regarding the transfer of stock. 2. Held, further, the estate may not include in the marital deduction the value of the real estate that W ceded to the sons. 3.

Respondent filed a motion in limine to preclude petitioner's expert from submitting a report or testifying on the rights of decedent's spouse under a will under North Carolina State law. Held: expert testimony on State law invades the province of the Court and is inadmissible under Fed. R. Evid. 702.

P is a California nonprofit corporation. Its stated purpose is to provide innovative and affordable housing for low income people, handicapped persons, and pre-and post-incarcerated persons. Held: P's activities performed as co-general partner in for-profit limited partnerships substantially further nonexempt purposes, and private interests will be served by its activities.

Held, Respondent's determinations of income tax deficiencies and additions to tax do not constitute estimated income tax within the meaning of I.R.C. sec. 6201(b)(1), which prohibits the assessment… Held: Respondent's determinations of income tax deficiencies and additions to tax do not constitute estimated income tax within the meaning of I.R.C. sec. 6201(b)(1), which prohibits the assessment of estimated tax.

Held, on the facts, the provisions of Rule 91(e), Tax Court Rules of Practice and Procedure, do not require the Court to relieve petitioners of the binding effect of a stipulation of settled issues… Held: on the facts, the provisions of Rule 91(e), Tax Court Rules of Practice and Procedure, do not require the Court to relieve petitioners of the binding effect of a stipulation of settled issues into which the parties entered and which in due course was filed with the Court.

Held: a cash lease to a member of the family of a qualified heir is a cessation of qualified use by the qualified heir, resulting in the imposition of the additional estate tax… Held: a cash lease to a member of the family of a qualified heir is a cessation of qualified use by the qualified heir, resulting in the imposition of the additional estate tax under I.R.C. sec. 2032A(c). Williamson v. Commissioner, 93 T.C. 242 (1989), affd. 974 F.2d 1525 (9th Cir. 1992), followed.

Respondent mailed a notice of deficiency to petitioner's post office box, whereupon petitioner refused delivery. The petition herein was not timely filed. Held: Petitioner may not defeat actual notice of the deficiency determination by refusing delivery.

P, a dentist, purchased two dental clinics in September 1979 and May 1980, respectively. Held: R has come forward with sufficient evidentiary foundation to render her determinations nonarbitrary, within the rule of Weimerskirch v. Commissioner, 596 F.2d 358 (9th Cir. 1979), revg. 67 T.C. 672 (1977). See Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971).

Petitioner pled guilty to conducting a continuing criminal enterprise involving heroin sales for the period June 1982 through mid-July 1987 and to willfully making a false return by failing to include income and expenses from heroin distribution in his 1983 Federal income tax return. Respondent determined deficiencies and additions to tax for petitioner's taxable years 1982 and 1983 relating to unreported narcotics income. Petitioner challenged the deficiency notice on the grounds that it was arbitrary. 1. Held: The notice of deficiency is nonarbitrary as to both 1982 and 1983. 2. Held, further, petitioner is liable for deficiencies and additions to tax under sec. 6661, I.R.C., for both 1982 and 1983. 3. Held, further, respondent carries her burden of proving, by clear and convincing evidence, some underpayment for both 1982 and 1983. Respondent also carries her burden of proving, by clear and convincing evidence, petitioner's fraudulent intent for each year. Accordingly, we sustain the additions to tax under sec. 6653(b)(1), I.R.C., for 1982 and 1983. 4. Held, further, respondent proves, by clear and convincing evidence, an underpayment attributable to unreported income of $ 500, for both 1982 and 1983. See Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). Accordingly, we sustain the additions to tax under sec. 6653(b)(2), I.R.C., for both 1982 and 1983, with respect to the underpayment attributable to unreported income of $ 500.

P is an organization generally exempt from Federal income taxation under sec. 501(a), I.R.C., as an organization described in sec. 501(c)(4), I.R.C. Among other things, P has assigned error to R's determination that income from P's rental of its mailing lists constitutes unrelated business taxable income within the meaning of sec. 512(a)(1), I.R.C. Both parties have moved for partial summary judgment on that issue. 1. Held: Disabled American Veterans v. Commissioner, 94 T.C. 60 (1990), revd. on other grounds 942 F.2d 309 (6th Cir. 1991), followed, in that, since the mailing lists are intangible property, all consideration received for the use of those lists constitutes royalties within the meaning of sec. 512(b)(2), I.R.C. No issue of material fact exists on that point, and we grant P's motion for partial summary judgment with respect to that issue. R's cross-motion for summary judgment is denied. 2. Held, further, a material question of fact does exist as to the extent, if any, of the income derived by P from the sale of the media on which the mailing lists were furnished. The respective motions for partial summary judgment on that issue are denied. 3. Held, further, a material question of fact does exist on the issue of whether P sold substantial services in connection with the rental of its mailing lists. The respective motions for partial summary judgment on that issue are denied.

On September 23, 1987, an armored truck robbery occurred in Philadelphia, Pennsylvania. Held: Respondent's determination of a tax deficiency and an addition to tax under sec. 6654, I.R.C., is sustained. 2. Held, further, respondent's determination of fraud under sec. 6653(b)(1)(A) and (B), I.R.C., is sustained because respondent produced sufficient evidence to sustain respondent's burden of proof with respect to fraud.

H, a teacher during certain years not at issue, moved to metropolitan Washington, D.C. in October 1984 in connection with his employment as a replacement nurse. Held: The April 1985 expenses are not deductible moving expenses with respect to W's employment, because she had not yet obtained employment in the area, or with respect to H's employment, because more than 30 days had elapsed after his obtaining employment in the area.

Ps operated two laundromats during the years at issue. R determined deficiencies based upon Ps' secret records, which indicated unreported income from the laundromats. Held: Ps have failed to disprove the unreported income indicated by their secret records, and R's determination therefore is sustained as to each year at issue.

P entered into a transaction with his son-in-law, G, whereby G's limited partnership, L, acquired P's land and building in exchange for farm acreage, a purchase money obligation and cash. Held: Ps did not actually or constructively receive the withheld funds in the taxable year in question. Held, further, Ps are not liable for additions to tax under secs. 6653(a)(1)(A) and (B) and 6661(a), I.R.C.

R determined deficiencies and additions to tax for 1975, 1976, and 1977 using the net worth plus expenditures method. Held: The sanction imposed on Ps is proper. Held, further, R's determination of deficiencies as amended is sustained. Held, further, additions to tax for fraud under sec. 6653(b) are sustained.

U and I, corporations, each held 50 percent of the stock of R. U and I deadlocked over R's future operations. Held: The Dec. 31, 1981, transfer by R of $ 16.5 million in cash to U was a distribution of a dividend to U, eligible for the 85-percent deduction for dividends received by a corporation. Sec. 243, I.R.C. 1954.

Respondent determined income tax deficiencies against petitioners for their tax years 1982 through 1985. Held: With respect to respondent's deficiency determinations, petitioners fail to carry their burden of proof (except to the extent of a concession by respondent and one item respecting which we find in part for petitioners, on account of evidence adduced by respondent). Rule 142(a), Tax Court Rules of Practice and Procedure.

Held, P's motions (1) to vacate, as to P, decisions which have become final on the grounds (a) that the Court lacked jurisdiction as to P… Held: P's motions (1) to vacate, as to P, decisions which have become final on the grounds (a) that the Court lacked jurisdiction as to P since attorney chosen by P's spouse lacked authority to file case on P's behalf, and (b) that fraud on the Court was perpetrated; and (2) to Reinstate Action to permit Court to consider P's innocent…

RP seeks judicial notice of motions and an order of a State court concerning his motion to amend or modify a 9-year-old divorce decree of that court awarding to JP a percentage of the net income from… Held: This Court may take judicial notice of the existence of a State court order, but not of the State court's findings of fact, where collateral estoppel is not present. Fed. R. Evid. 201. 2. Held, further although the State court's order is relevant to the instant case, Fed.

P overpaid his 1987 Federal income tax through withholding. P's period for filing his 1987 income tax return was extended to Aug. 15, 1988. R mailed a notice of deficiency to P on Sept. 26, 1990. Held: Under sec. 6512(b)(3)(B), I.R.C. 1986, the statute of limitations on credit or refund of a tax overpayment determined by the Tax Court requires application of rules to facts existing at the date of the mailing of the notice of deficiency.

Held: Petitioner is found to be an unreliable witness. Therefore, respondent's determinations are upheld.

Properties individually held by P were retained for long periods of time, usually serving as rental properties before sale. P sold 321 properties during 1984 to 1986. Held: P was involved in the business of buying and selling real estate, as a dealer, and accordingly any proceeds from the sales of such properties were ordinary income. Held further, P does not have clean hands; he will not be allowed to challenge the form of the sham transaction he created.

P overpaid his 1987 Federal income tax through withholding. R mailed a notice of deficiency to P on Oct. 31, 1990. P filed a 1987 income tax return on Jan. 28, 1991, claiming an overpayment. Held: Under sec. 6512(b)(3)(B), I.R.C. 1986, the statute of limitations on credit or refund of a tax overpayment determined by the Tax Court requires application of rules to facts existing at the date of the mailing of the notice of deficiency.