Volume 70 — Tax Court Memorandum

During its 1979 and 1980 taxable years, P, a domestic corporation, manufactured aircraft engines and thrust reversers, and sold these parts to airframe manufacturers. Held: P is not entitled to additional DISC commission deductions because the engines and reversers were subject to * * * assembly after P sold them to the manufacturers. Sec. 1.993-3(d)(2)(iii), Income Tax Regs.

P is the sole shareholder of D & D, an S corporation that operated both a wholesale petroleum business and retail gasoline filling stations. Held: a taxpayer may not owe money to himself; there was no actual debt generated by the sales; and D & D was therefore not entitled to a bad debt deduction (sec. 166(a)(1)) in respect of the accounts receivable.

P is a physician. P's accountant (W) calculated P's medical practice receipts with the understanding that W was to use the subtraction method, as follows: P was to deposit receipts from… Held: The statute of limitations does not bar the assessment and collection of tax for 1977 through 1983. Pars. (1) and (4) of sec. 6501(c), I.R.C. 1954. 2. Held, further, P is liable for additions to tax for civil fraud for 1977 through 1984. Secs. 6653(b) and 6653(b)(1), I.R.C. 1954. 3.

A trust established for D's benefit under the will of her husband, H, provided for payment to her of income for life (and principal according to an ascertained standard) and gave her a testamentary general power of appointment. Distributions of trust principal were made to members of D's family, both before and after D, having suffered a stroke, was adjudged incompetent. Those distributions were not authorized by H's will or by court order. All living members of the family, including D, agreed, either personally or through custodians, to the distributions before D's incompetency; D did not agree, even through her guardians, to the distributions after her incompetency, but all the other members of the family did agree. Held, sec. 2038, I.R.C., does not apply to include any of the distributions in D's gross estate. United States v. Field, 255 U.S. 257 (1921), followed. Held further, a Pennsylvania court would not have returned to the marital trust the assets distributed to family members prior to D's incompetency, and those assets are therefore not included in D's gross estate under sec. 2041, I.R.C.Estate of Council v. Commissioner, 65 T.C. 594 (1975), followed. Held further, a Pennsylvania court would have returned to the marital trust the assets distributed following D's incompetency, and they therefore are included in D's gross estate under sec. 2041, I.R.C. Held further, assets transferred through the 1986 distributions, which occurred within 3 years of D's death, are not included in her gross estate under sec. 2035, 2038, or 2041, I.R.C., by virtue of that timing.

Held: P may not deduct depreciation under sec. 168, I.R.C., on 11 antique automobiles because it failed to prove that it had made a capital investment in the automobiles. Held: P may not deduct depreciation under sec. 168, I.R.C., on 11 antique automobiles because it failed to prove that it had made a capital investment in the automobiles.

R imposed a jeopardy assessment on Ps under authority of sec. 6861, I.R.C. Ps requested an administrative review of the jeopardy assessment on the grounds that such assessment was unreasonable. Held: Because we are convinced that respondent's jeopardy assessments described in her Notice of Jeopardy Assessment and Right of Appeal are appropriate under the circumstances of this case, Ps' motion for review of jeopardy assessment will be denied.

Held: During 1989 through 1991, Ps' dog-breeding activity was an activity not engaged in for profit under sec. 183, I.R.C.; accordingly, Ps may not deduct any… Held: During 1989 through 1991, Ps' dog-breeding activity was an activity not engaged in for profit under sec. 183, I.R.C.; accordingly, Ps may not deduct any losses from that activity for those years. Held, further, Ps are liable for accuracy-related penalties under sec. 6662(a) and (b)( 1), I.R.C., for each year.

H was arrested in 1985 and charged with conspiracy to distribute cocaine. Held: R's determination was not arbitrary and capricious, and Ps failed to prove that the source of the income was a gift. Held, further, R's determinations of additions to tax for fraud, substantial understatement, delinquent filing of tax returns, and negligence are sustained. Held, further, Ps are liable for self-employment tax.

P elected to value four parcels of land, owned by decedent at the time of death, under the special use valuation provision of sec. 2032A, I.R.C. The election… Held: P failed to substantially comply with the regulations under sec. 2032A, I.R.C., in submitting a notice of election not containing all of the required information. 2. Held further, P is required to value the subject properties at their fair market values on the date of decedent's death under sec. 2031(a), I.R.C.