Volume 99 — Tax Court Reports

Ts owned and operated two Christmas tree farms in Kansas. The farms functioned in the following manner: Each tree had two tags attached to it, one labeled Tree Cutting Permit. Held: Ts did not retain an economic interest in the Christmas trees within the meaning of sec. 631(b), I.R.C., and Congress did not intend sec. 631(b) to apply to transactions of the type that occurred between Ts and their customers.

P is a general partnership engaged in the practice of law. Held: The actuarial assumptions made by the plans' enrolled actuary were reasonable in the aggregate and represented the actuary's best estimate of anticipated experience under the plans, as required by sec. 412(c)(3); accordingly, as the assumptions used were not substantially unreasonable, R is precluded from requiring a retroactive…

During 1986, P received payments from the State of California to provide nonmedical care to her totally disabled adult daughter pursuant to the State's in-home supportive… Held: Under California law, P's daughter was the welfare recipient under the program and was intended to be the ultimate beneficiary of the welfare payments. P was employed to provide supportive services. The payments were not nontaxable welfare benefits to P and are includable in P's gross income.

P, the trustee of a charitable foundation, deposited the entire corpus of the foundation in a Bahamian bank which had lost its business… Held: further: P is not liable for second-tier excise taxes under secs. 4944(b)(2), I.R.C., relating to jeopardizing investments, and 4945(b)(2), I.R.C., relating to taxable expenditures. P received no notice or request to remove a jeopardizing investment or to correct taxable expenditures before the determination of the second-tier taxes.

On June 6, 1985, J, an S corporation, filed its corporate return for 1984. On March 2, 1987, R mailed notice of the final S corporation administrative adjustment (FSAA) to J's tax matters person. Held: when R mailed notice of the FSAA to J's tax matters person, the running of the 3-year limitations period for assessment of income tax, as set forth in sec. 6229(a), I.R.C., was suspended for 150 days plus 1 year under sec. 6229(d).

Held, net operating loss carrybacks attributable to settlement of partnership items of a partnership subject to the rules of subchapter C of chapter 63 (the partnership provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324), I.R.C., may be taken into account in redetermining partners' personal tax liability pursuant to Rule 155, Tax Court Rules of Practice and Procedure, in a deficiency proceeding under sec. 6214(b), I.R.C.Held, further, entry of decision in such deficiency proceeding will not be deferred pending resolution of other partnership-level proceedings under TEFRA partnership provisions.

Petitioners invested in limited partnerships relating to, among other things, enhanced oil recovery technology. Held, on the primary issues: (1) Activities of the partnerships were not engaged in with actual and honest profit objectives, and (2) debt obligations of the partnerships were not genuine.

Ps filed a motion to vacate and a motion to reconsider our opinion in this case, McKnight v. Commissioner,T.C. Memo. 1991-514, asserting that sec. 301.6231(a)(1)-1T(a)(3), Temporary Proced. & Admin. Held: Ps' motions are denied since sec. 301.6231(a)(1)-1T(a)(3), Temporary Proced. & Admin. Regs., 52 Fed.

Ps claimed investment tax credits pursuant to sec. 48, I.R.C., during the taxable years 1980, 1983, 1984, and 1985 for rehabilitation expenditures incurred with respect to eight buildings. Prior to the start of the rehabilitation process, the buildings in question were relocated from various cities in Texas to a business park near Austin, Texas.

Petitioners owned rental property which was subject to a recourse mortgage. Upon default, the property was acquired by the mortgagee at a foreclosure sale, and a deficiency judgment obtained against petitioners. Held, in determining petitioners' loss, the amount of the proceeds of the foreclosure sale constitutes the "amount realized" under sec. 1001(a), I.R.C.

R determined that P's failure to file returns and pay estimated tax and other related activities were fraudulent within the meaning of sec. 6653(b)(1) and ( 2),… Held: P did not have a good-faith belief that he was not required to file a return, report his taxes, or pay his tax. The holding of Cheek v. United States, supra (involving the interpretation of willfulness in a criminal case), analyzed in connection with the use of the term willful in civil fraud additions to tax.

Ps purchased existing McDonald's restaurant operations, including McDonald's franchise rights, from McDonald's franchisees. Held: With the exception of a relatively small allocation to going-concern value, the remainder of the purchase price attributable to the intangible assets associated with each restaurant is properly allocable to the franchise.

P, a dairy farmer, agreed to participate in the Federal Dairy Termination Program (DTP) under which the Government would pay P to cease… Held: the amounts received from the Federal Government under the DTP, to the extent not conceded to be capital gain by R, constitute ordinary income. Held, further, fair market value of dairy animals decided. Held, further, P's are not entitled to an abandonment loss or a deduction for extraordinary obsolescence for the 1986 taxable year.

Petitioners, husband and wife, were employed during the years in issue by the United Nations and UNICEF. Husband is a citizen of Jamaica and wife is a citizen of the Republic of the Philippines. Held: husband is not eligible for the exclusion under sec. 893(a), I.R.C., after filing the waiver under sec. 247(b) of the Immigration and Nationality Act, ch. 477, tit. I, 66 Stat. 163, 218 (1952).

By notices of final partnership administrative adjustment (FPAA's), R disallowed certain deductions claimed by the Hambrose Leasing 1984-5 and Hambrose Leasing 1984-2 Limited Partnerships. Held: the determination of a partner's amount at risk with respect to partnership liabilities personally assumed is not a partnership item, but is an affected item as to which this Court lacks jurisdiction in a partnership level proceeding. Roberts v. Commissioner,94 T.C. 853 (1990).

At the time of his death, D owned farmland in Idaho. The farmland is situated in two irrigation districts, which are political subdivisions of the State of Idaho. Held: In determining the value of the farmland under sec. 2032A(e)(7)(A), I.R.C., the O&M charges collected by the landowners as a part of the cash rental must be included in the average annual gross cash rental for the comparable land.

P and her husband, H, held certain partnership interests as community property. P and H made a joint return of income for 1985. Held: R need not comply with the unified audit and litigation procedures applicable to partnership items of H, because, pursuant to authority granted by sec. 6231(c)(2), I.R.C., the regulations provide that the partnership items of a partner named as a debtor in a bankruptcy proceeding will be treated as nonpartnership items as to such…

The parties settled the case before trial. P, an estate, substantially prevailed with respect to the amount in controversy. P moved for an award of litigation costs under sec. 7430(a) and Rule 231. Held: An estate is a party eligible for an award of litigation costs. The net worth requirements of 28 U.S.C. sec. 2412(d)(2)(B) (1988) apply to an award of litigation costs to an estate. The net worth of the estate is considered in applying 28 U.S.C. sec. 2412(d)(2)(B).

P's contend that information gathered by the U.S. attorney (USA) in anticipation of grand jury presentment becomes grand jury matter protected by… Held: information gathered by USA or R's agents in anticipation of presentment to a grand jury does not, per se, become grand jury matter within the meaning of Fed. R. Crim. P. 6(e). Held, further, the information gathered by USA and R's criminal agents that may have been used by R's civil examiners was not grand jury matter.

To corroborate a cash hoard claim, Ps offered into evidence the results of polygraph tests which were administered to them unilaterally, without notice to respondent. Held: results of petitioners' polygraph tests are inadmissible.

Ps are small businesses engaged in a variety of activities. Ps each adopted small defined benefit plans for one or two key employees. Held: all of the challenged actuarial assumptions for each of the plans at issue were reasonable. Held, further: The certifying actuaries for the plans using the unit credit funding method funded within allowable limits and made reasonable allocations of costs, and the enrolled actuary for the Fox plan made reasonable allocations of costs.

R made a jeopardy assessment of deficiencies in Ps' Federal income tax for the taxable years 1984 through 1988 followed by the issuance of a notice of deficiency determining the same deficiencies. Held: the disputed assessments were made in violation of the restrictions on assessment set forth in sec. 6213(a), I.R.C., and will be enjoined.

T overpaid his 1987 income taxes, but did not file any return within the period as extended to Aug. 15, 1988. Held: T is not entitled to a determination of overpayment by reason of sec. 6511(b)(2), I.R.C., made applicable by sec. 6512(b)(3)(B). The 3-year period of sec. 6511(b)(2)(A) is inapplicable since no return was filed prior to the issuance of the notice of deficiency.

T, an accrual basis taxpayer, guaranteed certain indebtedness of X Co. During 1984, X Co. defaulted on its obligations, and two of X Co.'s creditors filed suit against T to recover under… Held: T did not sustain a bad debt loss in 1984. 2. Held, further, in 1985, T is only entitled to deduct as a bad debt loss the amount actually paid on its guaranty obligations. 3. Held, further, delivery by a guarantor of a note does not constitute payment for purposes of sec. 166., I.R.C.

R determined deficiencies on account of the disallowance of losses deriving from Ps' interests in two grantor trusts. Held: R's notices of deficiency were timely issued. Sec. 6501(a), I.R.C., proscribing assessment after 3 years following the filing of the return, refers to the return of the taxpayer and not the grantor trust.

P timely submitted a notice of appeal of this Court's order of dismissal for lack of jurisdiction to the U.S. Court of Appeals for the Tenth Circuit, and concurrently filed a motion to accept a… Held: pursuant to the provisions of sec. 7485(a)(1), I.R.C., P's motion to accept the bond, where there has been a dismissal for lack of jurisdiction, will be granted.

Estate sought to elect the special use valuation of farm property under sec. 2032A, I.R.C., and further sought, in the event that the special use valuation were disapproved, to elect the alternate… Held: estate failed to prove that its farm property satisfied the 50-percent test of sec. 2032A(b)(1)(A), I.R.C.Held, further, petitioner made a valid election of the alternate valuation method under sec. 2032.

P's attorney, F, failed to comply with R's discovery requests; the Court's orders to compel production of documents; and the Court's standing pretrial order to exchange facts, documents, and other… Held: the case will be dismissed for P's failure properly to prosecute. Rule 123(b), Tax Court Rules of Practice and Procedure. 2.

The Ute Partition Act of 1954 (UPA), now codified as amended in 25 U.S.C. secs. 677-677aa, was one of a series of statutes enacted during the 1950s… Held: distributions from UDC were taxable income in T's hands. 25 U.S.C. sec. 677p (1982); Ute Distribution Corp. v. United States,721 F. Supp. 1202 (D. Utah 1989), affd. on this issue 938 F.2d 1157 (10th Cir. 1991). Held, further, the result herein is not limited to prospective operation from the date or year of this opinion.

Ps and Green (G) were shareholders in GACC. After well-informed negotiations between Ps and G, GACC sold property to Ps, and Ps sold their GACC stock to G at a price equal to Ps' basis. Held: Ps may not unilaterally disavow the form they and G chose for the transaction and recast it as a redemption. Held, further, Ps received a constructive dividend from their bargain purchase of property from GACC.

In connection with P's 1987 income tax liability, R subpoenaed various documents from a bank (the bank) where P maintained an account. Held: Enforcement of the subpoena shall be limited to those documents which contain: Evidence of payments to known creditors of P; P's name; or P's Social Security number. The bank located and photocopied over 20,000 documents in its effort to comply with R's subpoenas.

P was a plastic surgeon and the sole shareholder-employee of P.A., a professional association. Held: P's change of status from that of a sole shareholder-employee of P.A. to that of a sole proprietor does not constitute a separation from the service within the meaning of sec. 402(e)(4)(A)(iii), I.R.C.Held, further: P failed to demonstrate that the distributions were paid on account of P's separation from the service.

P, a foster parent, provided a home for disabled foster children and received payments for providing foster care. The funds were received from a placement agency described in sec. 501(c)(3), I.R.C., and exempt from tax under sec. 501(a). A portion of the funds for such payments was provided by the Federal Government. Held, for 1986, 1987, and 1988, sec. 131 excludes from P's gross income the foster care receipts. Held, further, for 1985, secs. 1401 and 1402 tax the excess of foster care receipts over foster care expenses as self-employment income because P's activity was a trade or business.

P argues its circumstances can be distinguished from INDOPCO, Inc. v. Commissioner,503 U.S.   , 112 S. Ct. 1039 (1992), because it was the target of a hostile takeover resulting in no long-term benefit such that amounts paid for professional fees are deductible. R counters that the takeover was not hostile and P derived long-term benefit, and that therefore INDOPCO is controlling. Held, takeover was not hostile and long-term benefit inured to P. Held, further, factual circumstances not distinguishable from INDOPCO.