T.C. Memo. 2000-262

UNITED STATES TAX COURT

MICHAEL E. AND LINDA S. MURRAY, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1640-98. Filed August 17, 2000.

Robert H. Culton II, for petitioners.

Randall B. Pooler, for respondent.

MEMORANDUM OPINION

LARO, Judge: This case was submitted to the Court without

trial under Rule 122. Petitioners petitioned the Court to

redetermine a $1,072,177 deficiency in their 1993 Federal income

tax, a $268,044 addition thereto under section 6651(a)(1), and a

$214,435 accuracy-related penalty under section 6662. Following
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1 Petitioners allege in their petition in relevant part that

respondent erred in determining: (1) Michael E. Murray (Mr.

Murray) realized a gain on the foreclosure described herein and

(2) Linda S. Murray is not an innocent spouse. We consider

petitioners to have conceded the latter allegation because: (1)

They did not list the allegation as an issue when they informed

the Court at the calendar call of the issues still in dispute,

(2) they have introduced into the record no evidence as to the

allegation, and (3) their posttrial briefs include no reference

to the allegation. For the same reason, we also consider

petitioners to have conceded the addition to tax and accuracyrelated penalty.

concessions by the parties,1 we must decide whether petitioners

may deduct a loss purportedly attributable to worthless stock. 

We hold they may not. Section references are to the Internal

Revenue Code in effect for the applicable year. Rule references

are to the Tax Court Rules of Practice and Procedure.

Background

All facts were either stipulated or found from the exhibits

which the parties submitted with their stipulations of fact. 

Those stipulations of fact and exhibits submitted therewith are

incorporated herein by this reference, and the stipulations of

fact are found accordingly. Petitioners are husband and wife. 

They resided in Longwood, Florida, when we filed their petition.

Petitioners filed with the Commissioner a joint 1993 Federal

income tax return on September 26, 1995. They claimed on that

return a $455,160 capital loss attributable to $317,424 and

$137,736 of losses reportedly passing through to them from S

corporations named Poinciana Mobile Home Park, Inc. (Poinciana),
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and Franklin Funding Company of Florida, Inc. (Franklin),

respectively. Petitioners now concede that they may not deduct

either loss.

Mr. Murray is Poinciana’s sole shareholder. Poinciana owned

and operated a mobile home park (the park) until the park was

foreclosed in 1993. Petitioners realized a $1,626,868 gain on

the foreclosure but did not recognize this gain on their 1993

Federal income tax return. They reported instead the $317,424

loss mentioned above.

Discussion

We must decide whether petitioners may deduct in 1993 an

unreported loss on the claimed worthlessness of Mr. Murray’s

Poinciana stock. Petitioners assert that the stock became

worthless as a result of the park’s foreclosure and that Mr.

Murray’s basis in that stock at the time of worthlessness was

$1,626,868; i.e., the same amount as the gain realized on the

foreclosure.

Section 165(g) provides that a taxpayer may deduct a loss on

stock that becomes worthless during the taxable year. In order

to deduct such a loss, however, the taxpayer must prove: (1) The

basis of the stock and (2) that the stock became worthless in the

year claimed. See Figgie Intl., Inc. v. Commissioner, 807 F.2d

59, 62 (6th Cir. 1986), affg. T.C. Memo. 1985-369; Steadman v.

Commissioner, 50 T.C. 369, 377 (1968), affd. 424 F.2d 1 (6th Cir.
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1970); Feinstein v. Commissioner, 24 T.C. 656, 657-659 (1955);

see also Kitch v. Commissioner, 104 T.C. 1, 5 (1995) (fact that a

case is fully stipulated does not lessen the burden of proof),

affd. 103 F.3d 104 (10th Cir. 1996). The taxpayer, to establish

worthlessness, must prove not only current balance sheet

insolvency, but also the absence of any reasonable expectation

that the assets of the corporation will exceed its liabilities in

the future. See Steadman v. Commissioner, supra at 376-377. 

Whether stock is worthless is a factual determination, as is the

determination of the year in which stock becomes worthless. See

Boehm v. Commissioner, 326 U.S. 287, 293 (1945); Finney v.

Commissioner, 253 F.2d 639, 642 (9th Cir. 1958), affg. in part

and revg. in part T.C. Memo. 1956-247; Austin Co. v.

Commissioner, 71 T.C. 955, 969 (1979).

We hold that petitioners have failed to meet their burden of

proving that Mr. Murray’s Poinciana stock became worthless in

1993. Petitioners rely primarily on their bald assertions on

brief to the effect that the stock became worthless at the time

of the foreclosure. These assertions do not persuade us that the

stock became worthless in 1993. See Aagaard v. Commissioner, 56

T.C. 191, 209 (1971); see also Hoover v. Commissioner, 32 T.C.

618 (1959) (a taxpayer’s belief that the cost of stock cannot be

recovered is not sufficient to establish that the stock is

worthless). Nor are we persuaded by the mere fact that Poinciana
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filed a tax return with the Commissioner in September 1995,

reporting that on December 31, 1993, it owned no assets, owed no

liabilities, and had a retained deficit of $1,000. Cf. Beatty v.

Commissioner, 106 T.C. 268, 273 n.5 (1996), and the cases cited

therein. We hold for respondent.

To reflect concessions,

Decision will be entered

under Rule 155.