Volume 92 — Tax Court Reports

P claimed a $ 25,000 charitable contribution to N, an organization exempt from tax under sec. 501(c)(3), I.R.C. 1954. Held: under these circumstances the borrowed portion of the contribution is not deductible. Held, further, the circumstances of the contribution should have put P on notice that the deduction could be disallowed, notwithstanding respondent's determination of N's exempt status. Held, further, negligence addition sustained.

Ps owned a four-year, 7 1/2-percent savings certificate in the amount of $ 30,000. Held: Ps may not net the interest expense incurred on the share loan against the interest income received from the certificates.

Decedent died on Jan. 3, 1982. Petitioner attempted to elect sec. 2032A, I.R.C. 1954, special use valuation on an amended Federal estate tax return timely filed on Oct. 4, 1982. In the notice of election, petitioner failed to supply the information and documentation necessary to substantiate the special value based on use pursuant to sec. 2032A(e)(7)(A) and sec. 20.2032A-4, Estate Tax Regs. Held, petitioner has not "substantially complied" with the regulations under sec. 2032A(d)(3)(B).

P filed his 1977 and 1978 Federal income tax returns on Oct. 13, 1978, and Oct. 22, 1979, respectively. Held: sec. 6503(i), I.R.C. 1954, added by the Bankruptcy Tax Act of 1980, provides that the period of limitations is suspended for the prohibition period (automatic stay under 11 U.S.C. sec. 362(a)(6) (1982)) and for 60 days thereafter. Held, further, P's motion for summary judgment is denied.

Petitioners controlled corporations C and B. Petitioners transferred to C all of their B stock and received in return securities (11-year debentures) and C… Held: sec. 351, I.R.C. 1954, operates to preclude application of sec. 301 dividend treatment; under sec. 351(a), petitioners' gains on the transactions are not recognized. Haserot v. Commissioner, 41 T.C. 562 (1964), and 46 T.C. 864 (1966), affd. sub nom. Commissioner v. Stickney, 399 F.2d 828 (6th Cir. 1968), followed.

R issued a notice of final partnership administrative adjustment for one of several partnerships in which Ps were partners for their 1983 taxable year. R is examining the others. R also issued a statutory notice of deficiency to Ps for 1983 in respect of adjustments to nonpartnership items. R calculated the deficiency for 1983 by assuming the correctness of his proposed adjustments to partnership items. Ps move to dismiss for lack of jurisdiction claiming that no deficiency can exist for 1983 until R's proposed adjustments to partnership items are finally determined. Held: Partnership items (whether income, loss, deductions, or credits) included on Ps' return are completely ignored in determining whether a deficiency exists that is attributable to nonpartnership items. R may not assume the correctness of his proposed adjustments to partnership items for computational purposes in determining a deficiency, and Ps may not offset net partnership losses against their taxable income for purposes of deficiency proceedings. Held, further: R determined a deficiency in Ps' 1983 Federal income tax. Ps' motion to dismiss for lack of jurisdiction is granted in part and denied in part.

P, a trade association for the water well industry, is exempt from taxation as a business league under sec. 501(c)(6), I.R.C. 1954. As the group policyholder of an industry casualty insurance policy, P actively sponsors and promotes that insurance program. Under an agreement with the insurance company, P performs a variety of services for the insurance company and for the insurance brokerage company that manages that insurance program. During the year in issue, P received a dividend from the insurance company in connection with that insurance program, part of which P distributed to those insured under the group policy and part of which P retained. R determined that the retained dividend (less related expenses) constituted unrelated business taxable income (UBTI) under sec. 512, I.R.C. 1954. Held, the test as to whether an activity constitutes a trade or business for purposes of (UBTI) is the profit motive test, determined by objective factors. United States v. American Bar Endowment, 477 U.S. 105 (1986), and Professional Insurance Agents of Michigan v. Commissioner, 726 F.2d 1097 (6th Cir. 1984), affg. 78 T.C. 246 (1982), applied and activity found to be a trade or business. Held, further, the test under sec. 513(a), I.R.C. 1954, as to whether the conduct of such a trade or business is substantially related to the business league's exempt purpose is whether the activity is conducted to provide benefits to the business league or industry as a whole as opposed to benefits to members in their individual capacity in proportion to fees paid. United States v. American College of Physicians, 475 U.S. 834 (1986), and Illinois Association of Professional Insurance Agents v. Commissioner, 801 F.2d 987 (7th Cir. 1986), affg. a Memorandum Opinion of this Court, applied, and conduct of activity found not substantially related to business league's exempt purpose. Held, further, the dividend from the unrelated business activity did not constitute a royalty payment under sec. 512(b)(2), I.R.C. 1954, since the dividend was not passive income in payment for the use of a valuable property right, but more akin to compensation for P's active role in the insurance program. Fraternal Order of Police Illinois State Troopers Lodge No. 41 v. Commissioner, 833 F.2d 717 (7th Cir. 1987), affg. 87 T.C. 747 (1986), applied.

P, a member of the CBOE and an appointed market maker in certain CBOE options, engaged in various option spread transactions. Held: offsetting positions in options do not constitute a similar arrangement under sec. 465(b)(4), I.R.C. 1954, as amended.

A, the sole shareholder of corporation D, caused D to distribute to him in November 1978 substantially appreciated stock in a public corporation which was being held as collateral for D's debts to… Held: gain from A's January 1979 sale of stock should not be imputed to D because D did not participate in the sale in any significant manner and the distributed stock was not inventory, the sale of which would produce operating profits for an ongoing business.

R filed a motion to compel P, Y's estate, to produce certain books and documents pertaining to P's financial status, and P cross-filed a motion for a protective order to prevent R from giving the requested materials to Mrs. Y, the widow and a beneficiary under the decedent's will. P maintained that if Mrs. Y obtained the requested materials, she would harass P with spurious litigation. R maintained that sec. 6103(e), I.R.C. 1954, authorized him to give the requested materials to Mrs. Y and that this Court was not empowered to limit or condition the authority granted under sec. 6103(e). Held, although sec. 6103(e) would ordinarily authorize R to transfer the requested materials to Mrs. Y, we can condition and restrict R's use of materials which are produced under our order and direction. Held, further, a review of the facts in this case indicates that P's request for a protective order is appropriate and will be granted.

In an earlier proceeding in this Court, Ps prevailed on one significant issue. Held: Ps are not entitled to litigation costs. Held: Ps are not entitled to litigation costs. R's position does not include any administrative action prior to the involvement of District Counsel, and the Eighth Circuit's opinions in Wickert v. Commissioner, 842 F.2d 1005 (8th Cir. 1988), and Berks v. United States, 860 F.2d 841 (8th Cir. 1988), do not mandate a different conclusion.

P, a licentiate of the Cumberland Presbyterian Church, served as a supply pastor at Shiloh Cumberland Presbyterian Church. Held: to determine whether P is a duly ordained, commissioned, or licensed minister we will apply a facts and circumstances test. Wingo v. Commissioner, 89 T.C. 922 (1987).

H owned and operated a book-publishing business founded in 1927 by his parents. In 1946, H became a one-third partner in the business with his parents. In 1968, H became a one-half partner in the business with his mother. In 1975, H became the sole owner of the business. Since the inception of the business, a consistent method of valuing inventory had been used. Books were initially placed in inventory at a value of one-fourth of manufacturing cost, and after 2 years, 9 months, books remaining in inventory were written down to zero. Respondent determined that the business' method of inventory valuation did not clearly reflect income; he adjusted the business' 1978 closing inventory to cost, resulting in an increase to petitioners' 1978 taxable income. Held: 1. The business' method of inventory valuation did not clearly reflect income, and respondent did not abuse his discretion under secs. 446(b) and 471, I.R.C. 1954, by revaluing the business' inventory. 2. Respondent's revaluation of the business' inventory constitutes a change in the business' method of accounting and requires an adjustment under sec. 481, I.R.C. 1954, to prevent amounts of taxable income from being omitted solely by reason of the change. 3. Respondent did not specifically approve the business' method of valuing inventory, within the meaning of sec. 1.446-1(c)(2)(ii), Income Tax Regs. 4. Respondent is not estopped from changing the business' method of valuing inventory. 5. H is not entitled to a pre-1954 exclusion under sec. 481(a)(2), I.R.C. 1954. 6. Petitioners are not entitled to the benefits of the "maxitax" on personal service income under sec. 1348, I.R.C. 1954, for the increase to their 1978 taxable income resulting from the foregoing. In 1978, petitioners sold a house located in Illinois. During and before 1978, petitioners and their children lived at various times either in Florida or Illinois. Held, 7. The Illinois house was petitioners' principal residence when they sold it; petitioners are entitled to "rollover" benefits under sec. 1034, I.R.C. 1954.

In trial to determine valuation of core deposits intangibles, Rule 145, Tax Court Rules of Practice and Procedure, was invoked excluding all witnesses,… Held: P's graph and accompanying computer calculations constitute testimony for purposes of Rule 145. Held, further, an expert witness may be found to be essential to the presentation of the case under Rule 145(a)(3), but there was no such finding made; instead, R requested the exclusion of experts, and P did not object.

Petitioner, a stock life insurance company, contracted with various financial institutions and automobile dealerships to pay them commissions and retroactive rate credits for placing credit insurance. Held: petitioner may deduct retroactive rate credits as compensation under sec. 809(d)(11), I.R.C. 1954. Held, further, petitioner's reserve for retroactive rate credits may not be taken into consideration in computing the amount of the deduction for retroactive rate credits.

Petitioner maintained a defined benefit pension plan and a money purchase pension plan. Held: petitioner failed to make timely employer contributions to its pension plans for purposes of sec. 412(b)(3)(A), I.R.C. 1954. Held, further, petitioner's pension plans contained accumulated funding deficiencies under sec. 412, I.R.C. 1954. Held, further, petitioner is subject to excise tax under sec. 4971(a), I.R.C. 1954.

Ps sold real estate in 1982. They reported interest income but did not report any gain from the sale on their 1982 tax return. Ps reported the sale as a completed transaction on their 1983 tax return. R asserted that Ps made a binding election out of the installment method and were therefore subject to an alternative minimum tax in 1983. Ps want the sale to be reported on the installment method. Held, since no election was made on or before the due date of the 1982 return, the installment method applies. Sec. 453(a) and (d), added by sec. 2(a) of the Installment Sales Provision Act of 1980, Pub. L. 96-471, 94 Stat. 2247.

Taxpayer operated a recycling business that involved purchasing, sorting, processing, and selling scrap metal and other solid wastes. In 1979 and 1980, taxpayer purchased transportation equipment that was used to transport scrap metal from collection sites to taxpayer's plant facilities and to transport the scrap material within and between taxpayer's plant facilities. Held, the transportation equipment does not qualify as recycling equipment under sec. 48, I.R.C. 1954, as amended, and taxpayer's investment therein is not eligible for energy tax credits. Sec. 1.48-9(g), Income Tax Regs., is valid.

P filed a Federal estate tax return and reported its equity interest in H, a closely held corporation, at the adjusted book value of the shares as of the date of decedent's death. Held: R's expert erred in, among other things, ignoring the transfer restrictions and in limiting his market comparison to a single comparable. Fair market value was the adjusted book value as of the date of death.

Ps filed untimely 1981 and 1982 income tax returns. The returns, postmarked on May 5, 1983, were received by R on May 9, 1983. Held: An untimely return is filed when it is received by R, and not when it is mailed. The notice of deficiency in this case was issued by R within 3 years of receiving Ps' untimely returns.

Ps were employed by nonappropriated fund instrumentalities of the United States while living in Germany. Held: Ps were employees of an agency of the United States for purposes of sec. 911(b)(1)(B), I.R.C. 1954, and accordingly are not entitled to elect to exclude foreign earned income under sec. 911.

R issued an FPAA to a partnership that had no tax matters partner. R did not appoint a tax matters partner. Held: R is not required to appoint a tax matters partner where the partners receive adequate notice and opportunity to protect their interests. Held, further, the FPAA is valid. Held, further, this Court lacks jurisdiction over petitioners' case.

Ps' counsel, C, moved under Rule 24(c) to withdraw as counsel of record after trial but before required briefs are to be filed based upon Ps' failure to… Held: under Rule 24(c), it is within the Court's discretion to grant or deny such a motion. Held, further, C's motion is granted, but the parties shall have an additional 90 days in which to file opening and answering briefs and C must turn over to Ps all items in their case file that may be useful in preparing such briefs.

In 1981, petitioner-husband, a District Court judge of the State of Louisiana, contributed 11 percent of his judicial salary to the Louisiana State Employees' Retirement System, in accordance with… Held: Petitioner-husband's contributions are not excludable from his 1981 income under sec. 457, I.R.C. 1954, or sec. 131(c)(3) of the Revenue Act of 1978 as amended by sec. 252 of the Tax Equity and Fiscal Responsibility Act of 1982; 2.

Petitioner was a limited partner in Robotics which was a limited partner in the project partnership, an Israeli limited partnership. Held: expenditures of the project partnership were not in connection with any trade or business, and petitioner is not entitled to deductions under sec. 174.

Held, a taxpayer's amount at risk in an activity to which sec. 465, I.R.C. 1954, applies is increased only to the extent of undistributed net income generated from such activity. Held: a taxpayer's amount at risk in an activity to which sec. 465, I.R.C. 1954, applies is increased only to the extent of undistributed net income generated from such activity.

P employed H as its agent to sell advertising to be published in programs for its annual men's basketball championship tournament. Held: P did not prove that the advertising sales activities were not regularly carried on or that the income constituted royalties. Thus, the income from the sales were subject to tax as unrelated business income. Secs. 511 through 513, I.R.C. 1954, as amended.

Petitioner's ex-husband failed to make certain court-ordered payments in 1980, 1981, and 1982. Held: Petitioner is not entitled to a bad debt deduction for any of the years because she has no basis in any of the debts. Swenson v. Commissioner, 43 T.C. 897 (1965), followed. 2. Petitioner is not entitled to a child care credit for the airfare expenses.

In this consolidated fraud case, Rule 145, Tax Court Rules of Practice and Procedure, was invoked at the beginning of the trial and witnesses were excluded from the courtroom. Held: a clear and intentional violation of the Court's exclusion order under Rule 145, Tax Court Rules of Practice and Procedure, has occurred. Held, further, as a sanction for the intentional violation of the Court's order and to protect the record, the Court will not permit K to testify in this case.

Respondent filed a motion to compel responses to interrogatories. Held: respondent's interrogatories do not comply with Rule 71 of the Tax Court Rules of Practice and Procedure.Held, further, respondent's motion to compel responses to interrogatories is denied. Held, further, petitioner's motion for protective order is granted.

P claimed to be a minister and that all of his income was tax-exempt on his 1983 Federal income tax return. Held: P failed to prove his entitlement to the dependency exemption, partnership loss, and head of household filing status. Held, further, additions to tax under secs. 6653(a)(1) and 6653(a)(2) upheld. Held, further: Tax shelter provisions under sec. 6661 apply. P's activity constitutes a tax shelter. Sec. 6661 addition to tax upheld.

P received payments in settlement of a suit against his former employer under the Age Discrimination in Employment Act, 29 U.S.C. secs. 621-634 (1985). Held: 1. 50 percent of the settlement was allocable to a claim for a tort-like injury and 50 percent of the settlement was allocable to wage-related claims. 2. P may exclude from gross income that portion of the settlement allocable to his claim for personal injury, violation of his right to be free from discrimination on account of age. Sec. 104(a)(2), I.R.C. 1954. 3. P may not deduct that portion of his legal fee that is allocable to the portion of the settlement that is excludable from income. Sec. 265(1), I.R.C. 1954. 4. Ps did not have substantial authority for the underpayment of their taxes within the meaning of sec. 6661(b).

Petitioner and its subsidiaries engaged in the manufacture, marketing, and sale of soft contact lenses and related products in the United States and abroad. Held: respondent abused his discretion under sec. 482, I.R.C. 1954, when he determined that the $ 7.50 sales price did not constitute an arm's-length consideration for the soft contact lenses sold by B&L Ireland to petitioner.

T Corp., struggling financially in its early years, sought additional capital through bank loans. Held: sec. 83 does not apply to the warrants since they were not transferred in connection with the performance of services.

The corporate petitioner made profit-sharing plan contributions in excess of the sec. 415(c)(1), I.R.C., as amended, maximum limitations. Held: The excess contributions disqualified the plan and were a material change in the facts on which the plan's favorable ruling was based. Respondent did not abuse his discretion in retroactively revoking the plan's favorable ruling of qualified status.

R issued a notice of deficiency on May 26, 1988. A timely petition was filed on June 20, 1988. Held: R failed to establish that he exercised reasonable diligence to ensure that his answer would be filed within the 60-day period provided by Rule 36(a), Tax Court Rules of Practice and Procedure.Held, further, P's counsel failed to comply with the provisions of Rule 33(b), Tax Court Rules of Practice and Procedure, in that counsel…

In May 1984, P was arrested for speeding in Florida. Held: the drug ledgers are admissible under rule 803(24) of the Federal Rules of Evidence.Held, further, R submitted sufficient substantive evidence linking P to the sale of marijuana; therefore, P has the burden of going forward as well as the burden of proving through substantive evidence that R's determination is arbitrary or erroneous.

P, an individual, filed for bankruptcy under Title 11 U.S.C. ch. 13. P's ch. 13 plan was confirmed by the bankruptcy court in Aug., 1986. Held: Confirmation of the ch. 13 plan does not serve to discharge P within the meaning of sec. 362(c) of the bankruptcy code. 11 U.S.C. sec. 362(c) (1982). Therefore, the automatic stay, provided in 11 U.S.C. sec. 362(a)(8) (1982), precludes the commencement or continuation of the case filed by petitioner in the Tax Court on Dec. 30, 1986.

Petitioner-husband was beneficiary of a trust which distributed income to him. The trust invested in two partnerships. After the periods of limitation expired with respect to the Federal fiduciary income tax returns of the trust, the Commissioner mailed a statutory notice of deficiency to petitioners in which he increased the amounts taxable to husband-beneficiary from the trust by virtue of disallowing the losses of the two partnerships claimed by the trust. Held, the expiration of the periods of limitation on assessment of additional Federal income tax against the trust does not bar assessment of additional Federal income tax against the beneficiary arising out of the disallowance of the losses of the two partnerships claimed by the trust. Held, further, the Commissioner properly increased petitioners' taxable income to reflect disallowance of the trust's losses from a partnership to the extent of the trust's capital contributions to such partnership.

Ps elected, under sec. 6166, I.R.C. 1954, to pay a portion of their respective Federal estate tax liabilities on the installment basis. Held: insofar as R's denial to Ps of the continued benefits of sec. 6166 impact upon the amounts of Ps' overpayments, we have jurisdiction to determine the propriety of R's denial thereof. Sec. 6512(b)(1).

Petitioners and respondent each moved to dismiss the petition for redetermination of petitioners' 1980 Federal income tax for lack of jurisdiction: petitioners on the ground that no valid notice of… Held: Postal Service Form 3877, standing alone, does not prove that respondent issued a valid notice of deficiency where the presumption of official regularity is overcome by evidence of irregularity. Petitioners' motion to dismiss for lack of jurisdiction is granted.

R issued a notice of deficiency to P on Dec. 19, 1983, for the taxable year 1980. Held: that P's remittance in 1983 constitutes the payment of interest on indebtedness within the meaning of secs. 163(a) and 461(f), I.R.C. 1954. Held, further, P's motion for summary judgment is granted and R's motion for summary judgment is denied.

Prior to filing his answer to the petition herein, R tried to concede the tax issue raised in the deficiency notice and in the petition. Held: the position of the United States in the civil proceeding under sec. 7430(c)(2)(A)(i) [now sec. 7430(c)(4)(A)(i)], I.R.C. 1954, refers to R's position in regard to the underlying substantive tax issue(s) raised in the case rather than to R's refusal to stipulate to litigation costs under Rule 231(a), Tax Court Rules of Practice and…

Petitioners filed tax protestor memoranda and consistently refused to pursue appeals with respondent. Held: we award damages of $ 5,000 to the United States under sec. 6673, I.R.C. 1954, because petitioners unreasonably failed to pursue available administrative remedies within the Internal Revenue Service. Held, further, petitioners are liable for additions to tax under secs. 6653(a)(1) and 6653(a)(2) for negligence.

P and R executed a Form 872-A consent to extend the period for making assessments intending that the consent apply only to assessments arising out of a specific subchapter S corporation P had… Held: The Form 872-A was not ambiguous, it contained a mutual mistake. Applying equitable principles, the Form 872-A may be reformed to conform with the parties' actual agreement. The statute of limitations does not bar assessment.

P elected special use valuation on its Federal estate tax return. The return was due on Mar. 22, 1982. Held: sec. 7502(a) is applicable to this case pursuant to sec. 7502(a)(2). Held, further, to show delivery, P may rely on the presumption that a properly mailed document is actually received by the person to whom it is addressed because R did not rebut the presumption.

Bajan, the sole general partner of three limited partnerships, Barbados Nos. 7, 8 and 9, was designated tax matters partner (TMP) for each… Held: the FPAA's mailed to the TMP at the address of the limited partnerships are valid and, accordingly, petitioner's motions to dismiss for lack of jurisdiction are denied. Held, further, Bajan, which was in bankruptcy at the time it executed the extensions, was without authority to execute same on behalf of the limited partnerships.

Applicant seeks reconsideration of the denial of his motion to perpetuate testimony in 91 T.C. 1096. Held: As recognized in 91 T.C. 1096, the discovery aspects in a motion to perpetuate testimony will not necessarily preclude granting of such a motion, but do cause the Court to scrutinize carefully the applicant's need to perpetuate testimony. Upon reconsideration, we reaffirm our prior opinion.

Petitioners owned a farm under which oil was discovered in 1981. In 1982, petitioners conveyed all of their interest in the minerals underlying the farm to Henry Energy Corp. in consideration for four other farms, new farm equipment, and a one-fourth royalty interest in all oil and gas produced from the conveyed mineral interest. Held: Petitioners retained an economic interest in the minerals underlying the farm by retaining a right to receive a specified percentage of all the oil and gas produced. Petitioners looked solely to the extraction of the minerals underlying the farm for a return of their capital ( sec. 1.611-1(b), Income Tax Regs.) and, as such, the four farms and the farm equipment received by petitioners are considered a lease bonus for Federal income tax purposes and will be taxable to petitioners as ordinary income. Held, further, there was no "sale or exchange" and no "gain or loss" within the meaning of sec. 1031, I.R.C. 1954, to permit nonrecognition of the value of the four farms received by petitioners.

Ps entered into a purported lease of a master recording produced by American Educational Leasing. Held: Ps were not entitled to the deductions claimed. Held, further, no part of the underpayment of Ps' taxes was attributable to a valuation overstatement, and they are not liable for additions to tax under sec. 6659, I.R.C. 1954. Todd v. Commissioner, 89 T.C. 912 (1987), affd. 862 F.2d 540 (5th Cir. 1988), followed.

R determined that P failed to report a dividend as gross income. Held: P has failed to prove the dividend was included in the dividends reported. R also determined that P failed to report the entire amount of premature IRA distributions received by him as gross income for taxable year 1984. P contends that IRA distributions are not included in gross income until the 60-day rollover period expires.

Ps included the tax upon recapture of investment credits in determining the amount of their regular tax for purposes of the alternative minimum tax computation. Held: the retroactive application of amended sec. 55(f)(2) is not an unconstitutional taking of property under the due process clause of the Fifth Amendment. Held, further, Ps are liable for additions to tax for negligence since part of the underpayment was due to negligence.

In substance, the partnership in which petitioners were partners, disposed of the entire interest in an apartment building. Held, this disposition by the partnership did not involve an exchange of like-kind property under sec. 1031. Held, further, petitioners are not entitled to elect installment sale treatment under sec. 453. Held, further, petitioner Delwin Chase failed to liquidate his entire interest in a partnership and is not entitled to capital loss treatment under sec. 731(a). Held, further, only petitioner Gail Chase has satisfied the requirements of sec. 731(a).

Respondent determined in his notice of deficiency that petitioner was not entitled to a claimed deduction for insurance premiums. Held: This Court lacks jurisdiction to consider (1) whether petitioner is entitled to an overpayment of sec. 4371, I.R.C. 1954, excise taxes and (2) petitioner's claim under the doctrine of equitable recoupment. Thus, we cannot consider whether there should be an offset of sec. 4371, I.R.C. 1954, excise tax paid against the deficiency.

The city of Bloomington, Indiana, issued municipal bonds, the proceeds of which were to be used by P, a tax-exempt private foundation, to build retirement community facilities. Held: P may deduct the interest expense it paid on the debt underlying the bond issue from its gross investment income in computing net investment income as defined in sec. 4940, Internal Revenue Code of 1954.

Petitioners, who are calendar year taxpayers, requested and received automatic extensions of time within which to file their 1981 and 1982 returns. Held: Petitioners did not properly estimate their tax on the Forms 4868 which they filed requesting automatic extensions of time for filing their 1981 and 1982 returns.

Petitioners seek review under sec. 6863(b)(3)(C), I.R.C. 1986, of respondent's determination to sell property (jewelry and furs) seized from petitioners. Held: The Court has jurisdiction to act on the motion. 2. The Court may issue a temporary stay of the sale of assets seized pursuant to a jeopardy or termination assessment pending review. 3.

P, in the process of appealing from a decision of this Court, filed an appeal bond for purposes of staying assessment and collection of P's affiliated and consolidated group's redetermined tax… Held: the Tax Court has discretionary authority to refuse to accept a surety or a bond proffered by a surety if the bond may not be adequate or appropriate security for eventual collection of any tax deficiency.

Ps filed a 1981 return in April 1982 reflecting a Houston, Texas, address. P, Joan Ward, died after the return was filed. On Oct. 31, 1986, P, Gerald Ward (hereinafter P), moved to Kingwood, Texas. Held: R's failure to file an objection to P's motion to dismiss was due to inadvertence, and since the order of dismissal was based on R's failure to object rather than on the merits of the issue, R's motion to set aside the order of dismissal is granted.

S, the promoter and general partner of numerous limited partnerships, represented that limited partners in S partnerships would be entitled… Held: Ps are not entitled to theft loss deductions on their cash contributions; (2) the transactions and nonrecourse notes lack economic substance and are not to be recognized for Federal income tax purposes; (3) the limited partnerships did not enter into the transactions with a profit objective; and (4) additions to tax under secs.…

P was a personal holding company. During P's fiscal years 1979, 1980, and 1981, P's manager embezzled funds. P did not discover the embezzlement until fiscal year 1982. Held: for purposes of the personal holding company tax provisions, secs. 541-547, sec. 165(e) precludes deduction of theft losses prior to the year of discovery.

The parties cross move for partial summary judgment in these test cases involving partnership investments in oil and gas exploration and production. Assuming, for purposes of the instant motions only, that the partnership debt obligations are genuine, it is held, (1) that the limited partners' assumption of partnership debt obligations created amounts with respect to which the limited partners were at risk under sec. 465(b)(2), I.R.C. of 1954, but only to the extent of the fixed and definite accruals each year on the debt obligations and only to the extent of the limited partners' fixed and definite liability each year on the obligations; and (2) that the limited partners were not protected against loss under sec. 465(b)(4), I.R.C. of 1954, on the partnership debt obligations they personally assumed. Other issues raised in the cross-motions for summary judgment are denied as not ripe for summary disposition.

Petitioner failed to adequately identify which shares of uncertificated mutual fund stocks he sold. Respondent correctly applied the FIFO method of accounting, as provided in sec. 1.1012-1(c), Income Tax Regs., in determining petitioner's basis in the stock he sold for purposes of determining petitioner's gains and losses.

P made interest-free demand loans to family trusts. Held, R's method of valuing the gifts made to the trusts reflects the reasonable value of the use of the money lent. Held: R's method of valuing the gifts made to the trusts reflects the reasonable value of the use of the money lent. Dickman v. Commissioner, 465 U.S. 330 (1984).

P is organized to pursue educational and charitable activities. As its primary activity, P operates a school to train individuals to fill responsible positions in political campaigns. P's training program is an "outgrowth" of similar training programs previously sponsored by the National Republican Congressional Committee. Graduates of P's training program are prepared to function in such strategic campaign positions as communications director, finance director, or campaign manager. Approximately 80 percent of P's graduates participated in at least 98 campaigns of Congressional and Senatorial candidates during 1986. P has failed to establish that such participation was on a nonpartisan basis. Other graduates participated in gubernatorial or other State-wide or local campaigns, or were employed by various Republican organizations. No graduate is known to have affiliated with any domestic political party other than the Republican party. R determined that P's activities benefited the private interests of Republican entities and candidates more than incidentally, a substantial nonexempt purpose. Consequently, R denied P's application for exempt status. Held, the requirement that P not be operated for the benefit of private interests, section 1.501(c)(3)-1(d)(1)(ii), Income Tax Regs., is applicable notwithstanding R's concession that no portion of P's net earnings inured to the benefit of private shareholders or individuals. Held, further, prohibited private interests include those of unrelated third parties. Christian Stewardship Assistance, Inc. v. Commissioner, 70 T.C. 1037 (1978), followed. Held, further, the determination of whether an interest is public or private in nature is made by examining the definiteness and charitable nature of the class to be benefited and the overall purpose for which the organization is operated. Aid to Artisans, Inc. v. Commissioner, 71 T.C. 202 (1978), followed. Held, further: P has failed to establish that the Republican entities and candidates who benefited by P's activities were nonselect members of a charitable class. Size alone will not per se transform a benefited class into a charitable class. Held, further, R's determination that P operated for the substantial nonexempt purpose of benefiting private interests is affirmed.

This case is on remand from the Court of Appeals for consideration by this Court of whether the decision should be vacated to allow additional deductions for expenses of administration. The issue was not raised prior to the entry of the decision, and petitioner did not move to vacate that decision. Held, under the circumstances, the decision will be vacated.

P, a compulsive gambler, gambled on credit extended by a New Jersey casino. During the following year, P and the casino settled the debt at a substantial discount. Held: the difference between the face amount of the debt and the amount for which it was settled constitutes income from the discharge of indebtedness. Sec. 61(a)(12), I.R.C. 1954.

P, an accrual method corporation, placed a letter of credit in trust to satisfy the estimated claims of a contested liability. Held: P may not deduct the contested liability. Held: P may not deduct the contested liability. The letter of credit is not a transfer of money or other property within the meaning of sec. 461(f)(2), I.R.C. 1954.

Respondent determined deficiencies in tax for the years 1979 through 1985, together with additions to tax in each year under sec. 6653(b), I.R.C. 1954, for fraud and under sec. 6654 for failure to… Held: it is inappropriate for respondent to cite unpublished memoranda sur orders regarding unrelated taxpayers and we will not consider such memoranda.

Husband, a self-employed dentist, incorporated his dental practice as a professional corporation. Held: Wife, as grantor, is treated as the owner of the trust since the beneficial enjoyment of the income is subject to a power of disposition exercisable by the wife without the approval or consent of any adverse party. Sec. 674(a), I.R.C. 1954. Thus, all of the trust income is taxable to Ps.

Over 2 years after entry of a decision sustaining a deficiency and awarding damages under sec. 6673, I.R.C. 1954, as amended, against them, petitioners moved to vacate the decision based on false… Held: the motion to vacate is denied where no different decision would be entered if the case were reopened.

Rule 37(c), Tax Court Rules of Practice and Procedure. -- After P failed to file a reply to R's answer, which contained affirmative allegations, R successfully moved… Held: motions to vacate Rule 37(c) orders will be judged by the same standard applied to Rule 90(f) motions for the withdrawal of deemed admissions. Held, further, P's motion is granted because she has indicated a meritorious case while prejudice to R is minimal, and R's motion for summary judgment is denied.

Petitioner placed in service various items of property at its distribution centers and claimed an investment tax credit with respect thereto under sec. 38, I.R.C. 1954. Held: Petitioner is not entitled to an investment tax credit with respect to such property under sec. 38, I.R.C. 1954, because such property does not constitute "other tangible property * * * used as an integral part of * * * furnishing transportation" within the meaning of sec. 48(a)(1)(B)(i), I.R.C. 1954. Hub City Foods, Inc. v. Commissioner, 90 T.C. 297 (1988), on appeal (7th Cir., Apr. 26, 1988), followed. Petitioner obtained certifications from State agencies in 1985 that certain of its employees hired prior to 1982 had, for 90 days prior to hire, been eligible for financial assistance under Part A of title IV of the Social Security Act. Petitioner claimed WIN credits under secs. 40, 50A, and 50B, I.R.C. 1954, for fiscal years beginning prior to 1982 with respect to such employees. Held, "substantially full-time" employment within the meaning of sec. 50B(h)(1)(B), I.R.C. 1954, means three quarters of what is the normal or customary work week for employees in the retail food industry. Held, further, retroactive certifications that employees meet the requirements of sec. 50B(h)(1)(A), I.R.C. 1954, are permissible.

During its fiscal year ending June 30, 1975, petitioner was a large publicly held corporation with substantial operations in electronics, leather goods, and handicrafts. On June 30, 1975, petitioner transferred its leather goods and handicrafts operations to two new wholly owned corporations. Among the assets transferred were certain items of sec. 38 property. In November 1975, petitioner distributed the stock of these corporations to its shareholders in completion of a reorganization described in sec. 368(a)(1)(D). Held, petitioner's transfer of its leather goods and handicrafts operations did not trigger recapture of the sec. 38 credit during its fiscal year ending June 30, 1975, as the transfer constituted a mere change in corporate form and petitioner retained a substantial interest in those operations. Held, further, the step transaction doctrine may not be applied so as to move to an earlier year a taxable event which occurred in and was intended to take place in a later year.

P is a trust forming part of a profit-sharing plan. Held: R did not abuse his discretion in not permitting a retroactive correction of sec. 415 violations. Held, further, because of the excess allocations, P became disqualified and lost its exempt status until 1984, when remedial action became effective. Held, further, the statute of limitations bars assessment for 1980, but not for 1979.

T, an American citizen working abroad, failed to file timely income tax returns for 1982 and 1983 under the mistaken impression that he was not required to do so by reason of liberalized benefits in… Held: the challenged provisions of sec. 1.911-7(a) of the regulations are valid.

In a Federal oil and gas lottery, petitioners were awarded three oil and gas leases on properties in Wyoming and North Dakota. Held: petitioners have not proven that the expected economic lives of their retained interests were less than the expected economic lives of the underlying mineral leases. United States v. Morgan, 321 F.2d 781 (5th Cir. 1963), followed.

M & P guaranteed payments to certain of their policyholders in 1978 and 1979. Held, the payments are properly characterized as policyholder dividends under sec. 809(d)(3) of the Internal Revenue Code. Held: the payments are properly characterized as policyholder dividends under sec. 809(d)(3) of the Internal Revenue Code. Held, further, the reserves established for the payment of these guaranteed payments are policyholder dividend reserves.

Petitioner may not deduct as an abandonment loss in 1980 the decrease in value of its certificates of convenience and necessity or operating authority incurred as a result of the deregulation of the motor carrier business by the Interstate Commerce Commission.

Respondent moved to prohibit the introduction of documents pursuant to sec. 982, I.R.C. 1954. Respondent has met all of the requirements of sec. 982. Petitioner has failed to prove its failure was due to reasonable cause. Held, respondent's motion is granted.

Petitioners have moved for reconsideration of our prior opinion (T. C. Memo. 1989-165) on the ground that respondent should be precluded from raising on brief the issue of "unrealized receivable" under sec. 751, I.R.C. 1954. Held, the rule against raising an issue on brief is not absolute and, since petitioners have not been prejudiced under the circumstances herein, petitioners' motion is denied.

P, a corporation, distributed in complete redemption of a shareholder's interest pursuant to sec. 302(b)(3) a parcel of land and a note receivable. Held: in applying sec. 311(c), P must allocate liabilities to assets to determine if liability exceeds basis.

Held, P is not entitled to net interest income against interest expense in determining the amount of deduction to be allocated and apportioned in computing the combined… Held: P is not entitled to net interest income against interest expense in determining the amount of deduction to be allocated and apportioned in computing the combined taxable income (CTI) of P and its DISC under sec. 994(a)(2), I.R.C. 1954. Held, further: Sec. 1.994-1(c)(6)(v), Income Tax Regs., is valid.

D created a trust in 1927. She retained a right to trust income, various rights with respect to the trustee, and a right to distribute income and designate beneficiaries. Held: A transfer to the trust, within the meaning of sec. 2036(c), 1All section references are to the Internal Revenue Code as amended and in effect as of the date of the decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure. I.R.C. 1954, occurred in 1927.

Petitioners carried over investment interest expense, paid in 1981, not allowable as a deduction in that year by reason of the limitation contained in sec. 163(d), I.R.C. 1954, but not in excess of taxable income for 1981, to 1982. They then carried over to 1983 the aforesaid 1981 excess investment interest expense and the excess investment interest expense paid in 1982 which was not allowable as a deduction in that year by reason of the limitation contained in sec. 163(d). The amount carried over was in excess of petitioners' taxable income for 1982. Held, that the 1982 investment interest expense disallowed under sec. 163(d) can be carried over to 1983 only to the extent that it does not exceed petitioners' taxable income for 1982. Held, further, that the 1981 investment interest expense disallowed under sec. 163(d) can be carried over to 1983.

In an arm's-length agreement, newly formed P acquired substantially all of the assets of an ongoing division of K for $ 14 million. Held: P correctly included the acquired finished inventory in a single LIFO pool with its subsequently manufactured inventory. Held, further, under any of the three accepted methods of determining going-concern value, P did not acquire going-concern value.

Petitioner held operating mineral interests from which it carved out overriding royalties that it transferred to a trust for the benefit of its shareholders. Held: petitioner did not dispose of oil, gas, or geothermal property as that term is defined in sec. 1254, I.R.C. 1954, as amended and in effect on Apr. 24, 1981, the date of the transfer, and is, therefore, not required to recapture the IDC previously deducted which related to the subject operating mineral interests.

Petitioner held operating mineral interests from which it carved out overriding royalties that it transferred to a trust for the benefit of its shareholders. Petitioner then distributed to its shareholders units of beneficial interest in the trust. Held, petitioner did not dispose of "oil, gas, or geothermal property" as that term is defined in sec. 1254, I.R.C. 1954, as amended and in effect in 1983, and is, therefore, not required to "recapture" the IDC previously deducted which related to the subject operating mineral interests.

The underlying substantive issue in these cases is whether petitioners may deduct losses from their investments in coal partnerships. During the course of the trial, respondent moved to have witnesses excluded from the courtroom. The Court granted respondent's motion, and fact witnesses were excluded from the courtroom. One witness (S), who was not present when the Court granted respondent's motion, subsequently was called to testify as a fact witness. During the course of S's testimony, it was disclosed that petitioners' counsel had provided S with significant portions of the trial transcripts. Subsequent to the conclusion of the trial, respondent filed a motion to strike the direct testimony of S. Petitioners' counsel then filed a cross-motion opposing respondent's motion to strike and requesting the Court to declare S exempt from the exclusion order. Held, petitioners' counsel violated the Court's exclusion order under Rule 145. Held, further, as a sanction for violating the Court's exclusion order, portions of S's direct testimony will be stricken from the record.

Petitioners invested in a real estate investment partnership that calculated accrued interest deductions relating to a long-term loan on the basis of the Rule-of-78's. Held: The use of the… Held: The use of the Rule-of-78's method of calculating accrued interest deductions relating to the long-term loan did not result in a clear reflection of partnership income.