Volume 69 — Tax Court Memorandum

P, a corporation, established profit-sharing and pension plans (Plans) in July 1970. Held: The Court has jurisdiction under sec. 7476, I.R.C., to make a declaratory judgment on the qualification of the Plans under sec. 401(a), I.R.C., and the tax exemption of the accompanying trusts (Trusts) under sec. 501(a), I.R.C.Held, further, the Plans are not qualified plans under sec. 401(a), I.R.C., and the Trusts are not tax…

P was the majority shareholder, president, and treasurer of Anderco, Inc. (A). Held: The statute of limitations does not bar the assessment and collection of tax for 1976, 1978, or 1979. Sec. 6501(c)(1), I.R.C. 1954. 2. Held, further, P is liable for additions to tax for civil fraud for 1976, 1977, 1978, and 1979. Sec. 6653(b), I.R.C. 1954. 3.

P, a coexecutor of D's estate, received property from the estate in P's capacity as a beneficiary. Held: P is personally liable for the tax as a fiduciary. Sec. 6901(a)(1)(B), I.R.C.; 31 U.S.C. sec. 3713(b) (1988). Held, further, P is also personally liable for the tax as a transferee. Sec. 6324(a)(2), I.R.C.

Held: P's interest expense of $ 3,020,740 is deductible as qualified residence interest under sec. 163(h)(2)(D), I.R.C.Held, further, P may deduct the $… Held: P's interest expense of $ 3,020,740 is deductible as qualified residence interest under sec. 163(h)(2)(D), I.R.C.Held, further, P may deduct the $ 53,536 in loan application fees that he paid and forfeited in 1989, under sec. 212, I.R.C.Held, further, P may not deduct any of the $ 16,900 in travel expenses in issue.

During the years at issue, P operated a business engaged in the preparation of income tax returns. P also received income from other activities. R determined that P had unreported income and that he had overstated certain deductions. Pursuant to Rule 90(a), Tax Court Rules of Practice and Procedure, R served upon P certain requests for admissions. P did not respond to the requests; thus, under Rule 90(c), Tax Court Rules of Practice and Procedure, the facts contained within the admissions' requests are deemed admitted. Given the fact that all the facts necessary for a decision are deemed admitted, there is no factual dispute remaining, and R is entitled to judgment as a matter of law. Consequently, R's motion for summary judgment will be granted. Rule 121(b), Tax Court Rules of Practice and Procedure.

Petitioner husband (P), a neurosurgeon, was employed by Dr. S. Dr. S subsequently incorporated his practice and named it N. Corp. P and others purchased control of N Corp. from Dr. S. Each buyer… Held: R's determination that the settlement payment is not an ordinary and necessary expense of P's business under sec. 162(a), I.R.C., is sustained. 2. Held, further, R's imposition of additions to tax under secs. 6653(a) and 6661, I.R.C., is sustained.

P performed cutting and skidding services in the Black Hills National Forest. Held: P is allowed to deduct the full cost of transporting himself and his equipment from his residence to the first work site of the day in the forest and from the last work site back to his residence. Walker v. Commissioner, 101 T.C. 537 (1993), followed.

P worked as a cutter in the Black Hills National Forest during his 1988 and 1989 taxable years. Held: P is allowed to deduct the full cost of transporting himself and his equipment from his residence to the first work site of the day in the forest and from the last work site back to his residence. Walker v. Commissioner, 101 T.C. 537 (1993), followed.

P performed cutting and skidding services in the Black Hills National Forest. Held: P did not substantiate the disallowed expenses; thus, their disallowance was proper. Held, further, income claimed on P's Schedule E from equipment rental should have been reported on P's Schedule C. Walker v. Commissioner, 101 T.C. 537 (1993), followed.

Held: P is liable for the 1983 through 1988 additions to tax for negligence and failure to file timely, as determined by R. Held: P is liable for the 1983 through 1988 additions to tax for negligence and failure to file timely, as determined by R.

Held: P understated his 1989 income from his sole-proprietor business by $ 24,825. Held: P understated his 1989 income from his sole-proprietor business by $ 24,825. Held, further, Ps are liable for an addition to tax under sec. 6651(a)(1), I.R.C., for failure to file timely a 1989 tax return. Held, further, Ps are liable for penalty under sec. 6662(a), I.R.C. for negligence.

P was one of nine persons (the Organizers) who attempted to organize a national bank. Before the bank could begin business operations or issue any stock, the Organizers were required to receive subscriptions for 500,000 of its shares before Aug. 1, 1988. These subscriptions were never received, and the bank never opened for business. The costs that were incurred in the organization process were paid by the Organizers through third-party financing for which each of the Organizers was jointly and severally liable. In 1989, one of the Organizers filed for bankruptcy and was discharged from any liability for the financing. On Sept. 14, 1989, two of the other Organizers paid back the financing. These two Organizers then formed a partnership to collect the funds that should have been paid by six of the Organizers, including P. These six Organizers jointly and severally executed a note payable to the partnership in the amount of the financing paid by the two Organizers. P made payments on this note in 1990 and 1991, and satisfied one-sixth of this note in 1991. Held: P may not deduct a $ 58,516 net operating loss in 1989, under sec. 172(a), I.R.C., that he purportedly incurred in 1988 with respect to the discontinued organization of the bank. Held, further, P may not deduct any loss in 1989, on account of the discharge in bankruptcy of one of the Organizers.

P1 and P2 were airline pilots who participated in a secondary strike called by ALPA, the pilots union. P1 was a member of ALPA, but P2 was not. Held: Strike benefits constitute taxable income to P1 and P2.

This matter is before the Court on respondent's motion for summary judgment. We have issued two prior reports in this case: T.C. Memo. 1992-504, supplemented by T.C. Memo. 1994-159. Held: Petitioner having failed to present a material issue of fact, and having failed to raise any other issue of law, summary judgment for respondent is appropriate.

By will, and pursuant to a prenuptial agreement, decedent left to his wife an interest in his cooperative apartment. P deducted the value of that interest as a claim against the estate under sec. 2053, I.R.C., in calculating the taxable estate. R disallowed the deduction as a claim not contracted bona fide and for an adequate and full consideration in money or money's worth. Held: R's disallowance is sustained. P failed to show adequate and full consideration in money or money's worth.

P, a bank, acquired through a foreign subsidiary a 44.5-percent interest in F, a Brazilian investment bank. Held: Brazilian law interpreted and P found to be entitled to a theft loss with respect to its initial investment in F. Held, further, Arkansas Best controls in this setting where P acquired a capital interest in F, even though one of P's primary motives for acquisition was to protect its business reputation.

P1 and P2 were engaged in the management and brokering of real property. Held: Pursuant to an irrevocable proxy coupled with an interest, executed on September 29, 1988, under Georgia law P1 no longer possessed the right to vote any of P2's stock.

Ds, their daughter, and her three children each transferred property to a newly formed, closely held corporation, C, in exchange for debt and stock. Held: The excess values that each D transferred to C were gifts to the common shareholders. Values of stock (including control premium), debt, and property determined. Held, further, Ds are both liable for an addition to tax under sec. 6651(a), I.R.C., for failure to file a timely gift tax return with respect to these gifts.

In 1983 petitioner husbands (PHs), officers and directors of a corporation (VB), bought shares of VB junior common stock which were to convert automatically into regular VB common stock upon the… Held: The conversion occurred in 1985. 2. Held, further, Ps are not equitably estopped to deny that the conversion occurred in 1984. 3. Held, further, Ps' motions to amend their petitions are granted. Rule 41(a), Tax Court Rules of Practice and Procedure.

This case involves the acquisition of the Life Savers Cos. (LS) by Nabisco Brands, Inc. (P). Held: P's initial and annual payments are deductible under sec. 1253(d)(2), I.R.C., because the contingent payments were a substantial element under the transfer agreement within the meaning of sec. 1253(b)(2)(F), I.R.C., and therefore Squibb retained a significant power, right, or continuing interest in the trademarks under sec. 1253(a),…

In Willamette Industries, Inc. v. Commissioner, T.C. Memo. 1992-407, the Court established the methodology to be used to compute the fair market value of timber cut by P based on a detailed… Held: P's motion to limit valuation adjustments will be denied because the timber values calculated under Rule 155 are supported by the record.

Held: Compensation paid by P to its only two officers/shareholders is reasonable.

In 1985, P and his parents (Fs) acquired a rental property as tenants in common. As part of the purchase price, P and Fs incurred a $ 111,750 debt for which they were jointly and severally liable. Held: P may not include the $ 101,125 debt in the cost of the new residence under sec. 1034, I.R.C. Held, further, P is liable for an addition to tax for substantial understatement under sec. 6661(a), I.R.C.

P and husband made a joint return of income for 1980. Held: P's status with regard to refund claim under Federal tax law did not make any part of the refund claim her sole management community property under Texas law. 2. Held, further, in its entirety, the refund claim became property of the husband's bankruptcy estate when he filed his petition in bankruptcy. 3.

Held: Ps understated their 1990 net income from self-employment. Held, further, Ps are liable for a self-employment tax on the unreported income. Held: Ps understated their 1990 net income from self-employment. Held, further, Ps are liable for a self-employment tax on the unreported income. Held, further, Ps may deduct only the $ 4,628 in meals and entertainment expenses allowed by R. Held, further, Ps are subject to the negligence penalty under sec. 6662(a).

P aggregated a passive loss distributed to her from her 25-percent partnership interest in LP, and passive income distributed to her from her 25-percent partnership interest in JV. Held: The leasing activities of JV, GP, and LP are separate rental real estate undertakings under sec. 1.469-4T(a)(3)(ii), Temporary Income Tax Regs., 54 Fed. Reg. 20542 (May 12, 1989), and JV does not meet the 30-percent test of sec. 1.469-4T(k)(6), Temporary Income Tax Regs., 54 Fed.

P was involved in the securities business during the years 1988, 1989, and 1990. During that period, P embezzled funds from clients and other investors for his personal benefit. Held: P must recognize as income the funds that he embezzled from clients and other investors during the years 1988, 1989, and 1990.

P contributed a large collection of sheet music to a qualified sec. 170(c), I.R.C., organization. Held: R's disallowance is sustained. The value of the contribution was insufficient to provide a carryover to the years in question.

Held: Except for $ 900 spent by P in 1989 for fliers, junior tennis racquets, and nerf balls used in Pee Wee and Munchkin tennis programs which P conducted for young juveniles, P failed to carry his… Held: Except for $ 900 spent by P in 1989 for fliers, junior tennis racquets, and nerf balls used in Pee Wee and Munchkin tennis programs which P conducted for young juveniles, P failed to carry his burden of proving his entitlement to various deductions and credits.

Prior to their divorce on November 9, 1987, H and W operated two corporations, P1 and P2. H was the sole shareholder of P1 and P2 until the date of the divorce settlement. Held: H received constructive dividends in 1983 through 1987 in the amounts by which the outstanding balances in shareholder loan accounts increased during those years.

T, a partnership, purchased the assets of an outdoor advertising company. R has challenged T's allocation of cost to certain depreciable assets (the sign plant). Held: The cost of the sign plant was $ 27,924,586. 2. Held, further, P has failed to show that it purchased a depreciable intangible asset in the form of certain leasehold interests. 3. Held, further, T correctly accounted for the costs incurred when it demolished or took down certain signs.

Petitioner seeks an award of litigation costs. 1. Held: Respondent's position in this civil litigation was not substantially justified; petitioner is entitled to litigation costs. Held: Respondent's position in this civil litigation was not substantially justified; petitioner is entitled to litigation costs. Sec. 7430(c)(4)(A)(i), I.R.C. 1986. 2. Held, further, the cost of living adjustment under sec. 7430(c)(1)(B)(iii), I.R.C. 1986, is to be computed from Oct. 1, 1981.

Pursuant to an agreement between P and H, H acquired a majority of P's shares in a public tender offer. Held: The transaction, in both form and substance, is a redemption governed by sec. 311(d)(1), I.R.C. 1954, rather than a sale under sec. 1001, I.R.C. 1954. 2. Held, further, P's objection to the admissibility of the valuation evidence submitted by R is overruled. 3.

Held: A 30-percent marketability discount is applied to determine the fair market value of certain shares of stock owned by each P on six valuation dates. Held: A 30-percent marketability discount is applied to determine the fair market value of certain shares of stock owned by each P on six valuation dates. Factors for determining marketability discount discussed.

Held: Ps underreported their 1988 and 1989 gross income. Held, further, Ps are liable for additions to their 1988 and 1989 taxes for fraud under secs. 6653(b)(1) and 6663, I.R.C., respectively. Held: Ps underreported their 1988 and 1989 gross income. Held, further, Ps are liable for additions to their 1988 and 1989 taxes for fraud under secs. 6653(b)(1) and 6663, I.R.C., respectively.

P was assessed countervailing duties by the Department of Commerce. Held: the amount transferred to the trust with respect to the Brazilian countervailing duty satisfied the requirements of sec. 461(f), I.R.C., and is deductible in computing P's income tax liability for 1985.

Approximately 16 months after she started employment as a senior officer at two related banks, the banks asked P to resign because of her managerial style. Held: The $ 102,288.48 payment is includable in P's gross income under sec. 61(a), I.R.C.

Under a plan of reorganization of X Corp. pursuant to chapter 11 of the U.S. Bankruptcy Code, the old shares of common stock were canceled and new shares of common stock were allocated exclusively to, and purchased by, holders of the old shares. Held, the cancellation of the old shares does not, in and of itself, make such shares worthless under sec. 165(g), I.R.C., but is simply one element to be taken into account in determining such worthlessness. Held further, based upon all the facts and circumstances, the old shares did not become worthless because the X Corp. had a potential future value that inured to the benefit of the old shareholders by virtue of their exclusive participation in the chapter 11 plan of reorganization.

Ps filed joint Federal income tax returns for the taxable years in issue. H invested in numerous tax shelters during those years. Held: W is not entitled to innocent spouse relief because she has not proven that it would be inequitable to hold her liable for the deficiencies attributable to the tax understatements.

As of June 13, 1983, P had been employed for over 30 years by BBSC, and been a partner in BBMP, an Ohio general partnership composed of… Held: It is appropriate to look to secs. 708, and 736, I.R.C., to determine when a partnership interest terminates for purposes of sec. 401, I.R.C. Consequently, pursuant to sec. 1.736-1(a)(6), Income Tax Regs., P was considered a partner in BBMP until he received the final payment in liquidation of his interest in the partnership.

Held: D received dividends of $ 200,451 from certain intercorporate transfers of money. Held, further, D's sec. 1244, I.R.C. loss was $ 12,500.

Held: With respect to Ps' 1990 taxable year, the Court will enter a decision under Rule 155, Tax Court Rules of Practice and Procedure, in accordance with R's computation. Held: With respect to Ps' 1990 taxable year, the Court will enter a decision under Rule 155, Tax Court Rules of Practice and Procedure, in accordance with R's computation.