United States Tax Court

T.C. Memo. 2024-83

KAREN VEERASWAMY,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 23581-22. Filed September 4, 2024.

__________

Karen Veeraswamy, pro se. 

Heather L. Marello and John M. Janusz, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HOLMES, Judge: Karen and Velappan Veeraswamy formed 

Ashand Enterprises in 2000. Their marriage was failing when Velappan 

took Ashand into bankruptcy in 2013. But Ashand was a success—when 

it sold its principal asset in 2014, the proceeds exceeded its liabilities. 

The Government took the position in bankruptcy court that Karen didn’t 

own any part of Ashand and shouldn’t receive any share of Ashand’s 

surplus. Now the Commissioner says she owned 50 percent and needs 

to include her share of that excess in her taxable income for 2014.

Karen relies on the doctrines of equitable and collateral estoppel 

to argue that the Commissioner is wrong. The Commissioner wagers 

that “contradiction is not a sign of falsity, nor the want of contradiction 

a sign of truth.”1

1 Blaise Pascal, Pensées 104, No. 384 (William Finlayson Trotter trans., 

J.M. Dent & Sons 1956) (1670).

Served 09/04/24
2

[*2] FINDINGS OF FACT

I. The Veeraswamys 

Karen Veeraswamy is a member of the Seneca Nation and was 

living on its reservation in Salamanca, New York, when she petitioned 

the Court.2 She married her husband, Velappan, in 1990. They started 

a family and raised two bright children who are now successful adults.

The couple also started a business, Ashand Enterprises, Inc.,

(“Ashand”) in 2000. They elected to make it an S corporation under

section 1362(a).3 Even though they don’t pay corporate taxes directly, 

S corporations are required to file information returns to the 

Commissioner to report the income and deductions which pass through 

to their owners. See § 6037.

When Ashand was incorporated in 2000, Velappan and Karen

each owned 100 shares of the business. We know this because we have

Ashand’s list of shareholders, which was memorialized in its first board 

meeting and in its articles of incorporation. Karen also says she herself 

remembers going to a Manhattan attorney’s office in 2000 to sign the 

corporate formation documents with her husband. We also have 

Ashand’s 2010 Form 1120S, U.S. Income Tax Return for an 

S Corporation, which showed Karen as a 50-percent shareholder.

Velappan started Ashand as a vehicle for trading tech stocks. 

After the dotcom bubble burst, he pivoted to real estate. Through 

Ashand, Velappan and Karen bought a building on Ward Avenue in The 

Bronx in 2005. The property was Ashand’s primary asset. It had about 

70 tenants, including apartment-dwellers and three commercial units.

Velappan served as Ashand’s president and all agree that he was 

the person who ran the business. Karen, however, did contribute. She 

was listed as Ashand’s secretary and treasurer. She helped open the 

corporate bank accounts, worked in its office, and collected rent from the 

tenants. Both spouses served on Ashand’s board of directors.

2 The parties stipulated that appellate venue lies in the Second Circuit. See

§ 7482(b)(1)(A). (All section reference are to the Internal Revenue Code and regulations 

in effect for the year at issue, and all Rule reference are to the Tax Court Rules of 

Practice and Procedure, unless we say otherwise).

3 See Maines v. Commissioner, 144 T.C. 123, 125 n.3 (2015) (describing 

S corporations).
3

[*3] Even as Ashand was prospering, the Veeraswamys’ marriage was 

not. Sometime around 2004, Velappan acquired what Karen describes 

as a “paramour”. He lived with this paramour on one floor of the twostory marital home. Karen and their children lived on the other.

Things turned darker when Velappan began to abuse Karen and 

their children. At least one incident left her hospitalized. After years of

enduring this, Karen moved out in 2011 and filed for divorce.

Despite this personal turmoil, Karen still helped with Ashand’s 

books and sent out eviction notices even after she discovered her 

husband’s adultery in 2004. But Velappan began to isolate his wife from 

the business. He took her off Ashand’s bank accounts and attempted to 

limit her access to the office.

He then used his cutting Karen off from the business in the 

increasingly acrimonious divorce litigation. He argued that Ashand 

wasn’t a marital asset because Karen was no longer involved with the 

company. Karen apparently took that to mean she was no longer a 

shareholder in Ashand. She also began to file her tax returns as married 

filing separately.

The turmoil from the Veeraswamys’ personal life overflowed into 

their business. Ashand fell behind on its mortgage payments, and in 

2013 Velappan filed for chapter 11 bankruptcy protection on its behalf.4

II. Ashand’s Bankruptcy

Velappan filed Ashand’s petition in the United States Bankruptcy 

Court for the Eastern District of New York. In those proceedings, he

confirmed Karen’s fears and represented to the court that he was 

Ashand’s president and sole owner.

The Veeraswamy children were at this point still young, and 

Karen had won an order from divorce court that required Velappan to 

pay support. Once she got this order, she filed a proof of claim in 

Ashand’s bankruptcy. Karen did not represent to the bankruptcy court 

that she was co-owner of Ashand—only that she was entitled to domestic 

support by way of her marriage to Ashand’s purported sole owner, 

Velappan. It would, of course, be an unusual corporate debtor that owed 

4 Because there were filings for chapter 7, chapter 11, and chapter 13 

bankruptcy among the various actors in this case, we’ll refer to the chapter 11 

bankruptcy as “Ashand’s bankruptcy” throughout for the sake of simplicity.
4

[*4] domestic support to its owner’s wife, and the bankruptcy court 

denied Karen’s claim, though it continued to let her participate in the 

case.

The bankruptcy moved quickly, and in 2014 the trustee assigned 

to Ashand decided to put the Ward Avenue property up for sale. The 

property ultimately fetched $7.6 million, more than enough to pay 

Ashand’s debts and leave a nearly $2 million surplus even after 

expenses.

When there’s a surplus, there’s usually a line of equity holders 

with their hands out. But Karen wasn’t one of them. There is nowhere 

in her initial proof of claim any assertion that she was Ashand’s coowner. At this point, Karen didn’t believe that she was a shareholder in 

Ashand. But because Karen remained a party in Ashand’s bankruptcy, 

the bankruptcy court—even though it denied her claim for domestic 

support—ordered that the surplus from the Ward Avenue sale be put 

into an escrow account controlled by Karen’s attorney until a resolution 

of the divorce proceedings.

The court entered its final decree in Ashand’s bankruptcy case in 

early 2015. The court stated that the decree “shall not be construed as 

to settle any issues as to the propriety of payments by the Debtor as 

between the Debtor’s equity holders or parties in interest.”

The resolution of these issues would take another bankruptcy 

proceeding.

III. Velappan’s Bankruptcy

Velappan had what seemed to be a very large family-support debt, 

and it turned out he had a federal tax debt as well. Velappan filed for 

chapter 13 bankruptcy in 2018. This bankruptcy petition was converted 

to a chapter 7 bankruptcy on Karen’s motion later that year.5 Karen

hadn’t received any domestic support from her husband before she filed

that motion, and it seemed like a good tactic to enforce her claim.

5 11 U.S.C. § 1307(c) provides such a procedure for what bankruptcy law terms 

a “party in interest.” A party in interest like Karen might want to convert a chapter 

13 bankruptcy—which generally allows a debtor to keep his property and reorganize 

his debts to be paid over time—to a chapter 7 bankruptcy that results in a liquidation 

of assets to more immediately pay creditors. Chapter 13 – Bankruptcy Basics, United 

States Courts, https://www.uscourts.gov/services-forms/bankruptcy/bankruptcybasics/chapter-13-bankruptcy-basics (last visited July 19, 2024).
5

[*5] Both the Commissioner and Karen filed proofs of claim in 

Velappan’s bankruptcy.6 The Commissioner’s claim was for Velappan’s 

income-tax liabilities for 2012–15 that he had assessed. (These were not 

joint debts—remember, during those years Karen filed as married filing 

separately.) Karen’s proof of claim was for the domestic support that 

Velappan still owed her.

A year into this bankruptcy battle, in February 2019, Velappan 

had a heart attack and died. The divorce case was now moot, and the 

local surrogate’s court appointed Karen as the administrator of her late 

husband’s estate. As she began sorting things out, Karen discovered

corporate documents in a cockroach-infested basement that showed she 

had remained a 50-percent shareholder in Ashand. Velappan had lied 

to the courts, to creditors, and to her.

IV. The Bankruptcies Converge 

Karen’s discovery created a cascade of filings from the trustees 

and parties in interest in the two bankruptcies, as well as in the divorce 

proceedings. The trustee in Velappan’s bankruptcy filed an amended 

complaint to obtain the surplus funds from Ashand’s bankruptcy that 

were still held in escrow by Karen’s attorney. The trustee’s theory was 

that the old corporate records should be ignored, and that any surplus 

from Ashand was the sole property of Velappan because Velappan had 

sworn that it was so and was in no position to be examined on the 

subject.

Karen opposed this motion but was unable to stop the release of 

the funds from escrow. The bankruptcy judge in Velappan’s case 

directed the turnover of the money in escrow to the trustee for 

distribution.

But Karen had another option. A week after the court ordered 

the turnover of the funds, she submitted an amended proof of claim in 

Velappan’s bankruptcy. In addition to the previous claim for domestic

support, Karen sought $950,000 as an equity distribution from Ashand’s 

sale of the Ward Avenue building.

6 Throughout the various bankruptcies involving Velappan and Ashand, the 

government’s interests were represented by both the Department of Justice and the 

Commissioner, with the latter filing this proof of claim for taxes or penalties owed to 

the IRS pursuant to 11 U.S.C. § 507(a)(8).
6

[*6] She specifically asserted that she was a 50-percent shareholder of 

Ashand. She signed this claim under penalty of perjury. And she 

attached with the claim Ashand’s corporate-formation documents as 

proof.

She also asserted her part ownership of Ashand in an answer to 

an adversary complaint that the trustee filed in Velappan’s bankruptcy. 

In the answer and a subsequent addendum she again stated that she 

was a 50-percent shareholder in Ashand and, as proof, attached 

Ashand’s 2010 Form 1120S and her own Schedule K–1, Shareholder’s 

Share of Income, Deductions, Credits, etc.7

That wasn’t all. She also moved to reopen Ashand’s bankruptcy—

apparently as a backup measure to somehow recover the surplus should 

her efforts in Velappan’s bankruptcy fail. Karen argued in that motion 

as well that she was a 50-percent shareholder of Ashand.

The Department of Justice intervened in Ashand’s bankruptcy. It 

objected to Karen’s motion, asserting that Karen should be estopped 

from arguing that she was a 50-percent shareholder in Ashand because 

she had been involved in the bankruptcy going back to 2013 and had 

never before challenged Velappan’s sole ownership of the corporation.

This objection sought to keep the status quo on res judicata grounds that 

Velappan was Ashand’s sole shareholder.

In the end, the trustee in Velappan’s bankruptcy negotiated a 

settlement with Karen in the interest of the estate. The DOJ, on behalf 

of the Commissioner, objected because it wanted to make sure somebody 

recognized the capital gain from the sale of Ashand’s property in the 

corporate bankruptcy.

In March 2022 the court overseeing Velappan’s bankruptcy 

approved a final settlement. The court reclassified Karen’s claims for 

domestic support and equity disbursement as secured claims. This put 

her at the head of the line of her late husband’s other, unsecured 

creditors. The trustee then paid Karen $486,038 to satisfy her equity 

claim. She also received $480,000 in domestic support. Karen didn’t

report either figure in her 2022 tax return, and she didn’t file a return 

for her 2014 tax year. 

7 A Schedule K–1 is a form the IRS requires a firm to send to its owners so they 

can report their share of the firm’s income and losses. 33 Am. Jur. 2d Federal Taxation

§ 2589.1, Westlaw (database updated May 2024).
7

[*7] The Government was paid only 60 percent of its priority

unsecured claim and nothing of its general $480,744 unsecured claim.8

V. Audit and Trial

A. The Commissioner Looks into Ashand

It looked like the gain from the sale of Ashand’s assets was going 

to go untaxed. But the Commissioner has his ways. Even before 

Velappan died, the Commissioner began an audit of Ashand for the 2014 

tax year. This audit ended in 2017, but we don’t know how because the 

revenue agent (RA) testified only that the audit occurred. We do know 

that she reopened the audit in February 2022 after she received the 

bankruptcy-court filings in which Karen claimed that she owned half of 

Ashand. 

To reconstruct Ashand’s 2014 income—remember that Ashand 

didn’t file a tax return for that year—the Commissioner relied on 

Ashand’s own filings in the bankruptcy court. These included various 

bank and expense statements, operating reports, and canceled checks

from the beginning of 2014 until the Ward Avenue property was sold 

that summer. He also conducted a bank-deposits analysis as part of his 

resumed audit of Ashand.

Using this information, the Commissioner determined that 

Ashand received nearly $400,000 in gross—and a bit more than $80,000 

in net—rental income in 2014. He allowed all of the expenses reported 

by Ashand in its bankruptcy filings as part of this calculation.

The RA also determined that Ashand realized a $1.9 million

capital gain in 2014 from the sale of the building, half of which was later

attributed to Karen. Karen submitted the property-transfer report as 

proof of Ashand’s basis in the Ward Avenue property but didn’t submit 

any other documents regarding basis or testify about capital 

improvements or depreciation of the building. The RA used the 

Veeraswamys’ $5 million purchase price as basis, and adjusted the gross

sales price by the amount of improvement costs that she herself could 

find.

8 In bankruptcy law, certain tax liabilities are granted “priority” status over 

other unsecured claims. See United States Courts, supra note 5.
8 

B. The Commissioner Looks into Karen

Once the Commissioner started looking at Ashand’s 2014 tax bill, 

it was probably inevitable that he would also look into Karen’s 2014 tax 

bill. Her name was prominent in Ashand’s bankruptcy, and she now 

was saying she was a 50-percent shareholder of Ashand.

Karen had not filed a 2014 income-tax return, so the 

Commissioner used his power under section 6020(b) to prepare a 

substitute return. This return used the calculations and assumptions 

derived from Ashand’s bankruptcy filings. Remember that Ashand was 

an S corporation—a kind of passthrough entity—so the Commissioner 

assigned half of Ashand’s net rental income and half its capital gain to 

Karen.

The Commissioner relied on the bank-deposits analysis that the 

RA conducted using Ashand’s statements submitted in bankruptcy court 

as an alternative position. And he also asserted penalties for failure to 

timely file and failure to timely pay in his notice of deficiency. 

Karen filed a timely petition.9 Before the case was tried, the 

Commissioner successfully moved under Rule 91(f) to admit many of 

Ashand’s and Karen’s filings in the bankruptcy proceedings as if 

stipulated by the parties. 

The main question for us to decide is whether Karen was in fact 

a 50-percent shareholder in Ashand in 2014. She argues that she wasn’t

a shareholder but just the “non-moneyed” spouse who received no

income from Ashand once she filed for divorce.

OPINION

I. Who Owned Ashand in 2014?

A. S Corporation Ownership

Some shareholders, like Ashand’s, can have their entities elect 

under the Code to be treated as S corporations. Once approved by the 

IRS, the election remains effective for all later years. § 1362(c); see Chan 

v. Commissioner, 122 T.C.M. (CCH) 355, 357 (2021). Not even filing a 

9 The Commissioner has since conceded that she isn’t liable for an addition to 

tax for failure to pay estimated taxes pursuant to section 6654(e)(2). Karen does not 

contest the recognition of $139 in qualified dividend income. The Commissioner 

concedes a $38 withholding credit.

[*8]
9

[*9] bankruptcy petition terminates this shareholder-level election of 

S corporation status for tax purposes. Mourad v. Commissioner, 121

T.C. 1, 4 (2003), aff’d, 387 F.3d 27 (1st Cir. 2004).

1. Whether It Is More Likely than Not that Karen

Owned Ashand in 2014

A shareholder is ordinarily considered a person who would have 

to include in gross income the distributions with respect to the stock of 

the corporation. Treas. Reg. § 1.1361-1(e)(1). Looking at the corporate 

history of Ashand, we know from the minutes of Ashand’s first board 

meeting that Karen and Velappan each owned 100 shares. We know 

that they also did in 2010, as there are Forms 1120S and Schedules K–1 

showing their 100-share ownership.

We don’t have either of these forms for 2014, though, because 

Ashand didn’t file a return for that year. But there are so many other 

filed documents that we can look to during this period—we have the 

corporate records, tax returns, bankruptcy exhibits, and family-court

exhibits. None of them show that Ashand’s ownership changed between 

its incorporation and 2014.

Hightower v. Commissioner, 90 T.C.M (CCH) 530 (2005), aff’d, 

266 F. App’x 646 (9th Cir. 2008), provides a useful comparison. There, 

a taxpayer petitioned for a redetermination of a deficiency in connection 

with an S corporation buyout to which he was opposed. Like Karen, the 

taxpayer in Hightower had a souring relationship with the 

S corporation’s other shareholder and had been excluded from the 

benefits of owning the stock. See id. at 531, 535.

We held that, despite the exclusion, the taxpayer was still a 

shareholder. Our S corporation law doesn’t permit the income of an 

S corporation to evade passthrough or ownership treatment because of 

a poor relationship between the shareholders. Id. at 535.

We therefore find that it’s more likely than not that Karen was a 

50-percent shareholder of Ashand in 2014.

2. Whether Karen Abandoned Her Ownership Interest 

in Ashand

We recognize that Karen represented herself in this case. While 

she didn’t explicitly argue this in her brief, she did argue during trial 

that she didn’t believe she continued to own Ashand shares after she 
10

[*10] filed for divorce because she didn’t receive distributions of 

Ashand’s income. We will liberally construe this as an argument that 

Karen had abandoned her interest in Ashand. See Erickson v. Pardus, 

551 U.S. 89, 94 (2007) (per curiam) (construing documents filed by pro se

litigants liberally).

We’ve held that a partner can abandon his partnership interest 

for tax purposes. See Citron v. Commissioner, 97 T.C. 200, 213 (1991). 

And like a partnership, Ashand is a passthrough entity in which a 

shareholder can abandon his or her interest. See Penland v. 

Commissioner, 102 T.C.M. (CCH) 522, 527 n.18 (2011). But an 

affirmative act based on all of the facts and circumstances is required 

for abandonment of an ownership interest—intent isn’t enough. Milton 

v. Commissioner, 98 T.C.M. (CCH) 386, 387 (2009) (citing United Cal. 

Bank v. Commissioner, 41 T.C. 437 (1964), aff’d per curiam, 340 F.2d 

320 (9th Cir. 1965)).

Abandonment also generally requires a taxpayer to relinquish the 

asset and any future claims to it. Tsakopoulos v. Commissioner, 83 

T.C.M. (CCH) 1064, 1069 (2002), aff’d, 63 F. App’x 400 (9th Cir. 2003). 

When the asset is an intangible property interest—such as shares in an 

S corporation—we look for an express manifestation of abandonment. 

Citron, 97 T.C. at 209–10.

We find that Karen didn’t abandon her interest in Ashand. Not 

only did she not make an affirmative act of abandonment, but she also 

actively pursued her ownership interest in the bankruptcy proceedings. 

For tax purposes—if not also for logical consistency—Karen either was 

or wasn’t a shareholder of Ashand in 2014.

She says that she wasn’t in this case, but she argued in 

Velappan’s bankruptcy proceedings that she was. Even if we take as a 

given that she only discovered her ownership in the midst of her late 

husband’s bankruptcy case, her amended proof of claim represented her 

final, considered position in those proceedings. We think this also shows

it’s more likely than not that Karen owned 50 percent of Ashand in 2014.

B. Estoppel in Bankruptcy Court

Karen, however, has a backup argument arising from the 

Government’s own inconsistent positions over the years. She says that 

the Government, through its attempts in Velappan’s bankruptcy 

proceedings to prevent the distribution of Ashand’s surplus to her, has 

already argued that she wasn’t an owner of Ashand. Therefore, she
11

[*11] says, the Commissioner can’t say otherwise in this case under the 

doctrine of equitable estoppel or collateral estoppel.10

1. Equitable estoppel

Equitable estoppel precludes a party from “denying his own acts 

or representations which induced another to act to his detriment.” Howe 

v. Commissioner, 119 T.C.M. (CCH) 1530, 1534 (2020) (citing Hofstetter 

v. Commissioner, 98 T.C. 695, 700 (1992)).

To equitably estop the Commissioner from arguing that Karen 

owned Ashand in 2014, we need to find:

• A false representation or misleading silence by the 

Government;

• an error in a statement of fact and not an opinion or 

statement of law;

• that Karen, as the party invoking equitable estoppel, was 

ignorant of the true facts;

• that she reasonably relied on a false or misleading 

statement by the Government; and

• that she incurred a detriment as a result.

Estate of Telesmanich v. Commissioner, 102 T.C.M. (CCH) 114, 115 

(2011) (citing Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 60 (1995), 

supplemented by 104 T.C. 417 (1995), aff’d, 140 F.3d 240 (4th Cir. 1998)).

It is also more difficult to assert equitable estoppel against the 

Government. Even before getting to the five requirements above, Karen 

needs to show that the Government engaged in affirmative misconduct 

10 Her answering brief actually used the term res judicata rather than 

collateral estoppel. The doctrine of res judicata—sometimes called claim preclusion—

bars later litigation if an earlier decision was (1) a final judgment on the merits; (2) by 

a court of competent jurisdiction; (3) in a case involving the same parties or their 

privies; and (4) involving the same cause of action. Adelphia Recovery Tr. v. HSBC 

Bank USA, Nat’l Ass’n (In re Adelphia Recovery Tr.), 634 F.3d 678, 694 (2d Cir. 2011).

Bankruptcy and Tax Court cases are different and provide different relief. This 

means they do not involve the same cause of action, so res judicata doesn’t apply. We 

think Karen is really arguing that the Commissioner should be collaterally estopped 

from arguing that she was an owner of Ashand in 2014. See Rule 31(d) (“A pleading 

must be construed so as to do justice.”); see also Erickson, 551 U.S. at 94.
12

[*12] going beyond mere negligence, that its wrongful acts will cause a 

serious injustice, and that the public interest won’t suffer undue damage 

if a court estops the Government. See Howe, 119 T.C.M. (CCH) at 1534.

We can find no bad faith or misconduct for the Government’s part 

in its conduct during Velappan’s bankruptcy. The Department of 

Justice, in pursuing in bankruptcy court collection of Velappan’s 

assessed personal income-tax liability, was just acting on the 

information it had about Ashand’s ownership at the time. It wasn’t until

2019 when Karen, by opposing the bankruptcy trustee’s motion to obtain 

the Ward Avenue surplus and submitting an amended proof of claim 

asserting that she owned half of Ashand, that the Government learned 

of her claim to be a half owner.

The other elements of equitable estoppel just aren’t there either. 

Karen couldn’t have been ignorant of the true facts about her ownership 

interest when the Commissioner contested her amended proof of claim 

because she had by that time discovered and possessed the corporate 

documents showing that she was a 50-percent shareholder. And she 

didn’t incur a detriment from the Government’s contesting her 

ownership in bankruptcy—the bankruptcy court ruled against the 

Department of Justice and she in fact received her share of the surplus.

The Commissioner isn’t equitably estopped from asserting 

Karen’s ownership interest.

2. Collateral estoppel

Collateral estoppel—sometimes called issue preclusion—is a legal 

doctrine which, like res judicata, limits parties’ ability to try the same 

issue that they have already litigated. Once an issue of fact or law is 

actually and necessarily determined by a court, that issue is deemed

“conclusive in subsequent suits based on a different cause of action 

involving a party to the prior litigation.” Monahan v. Commissioner, 109 

T.C. 235, 240 (1997) (quoting Montana v. United States, 440 U.S. 147, 

153 (1979)).

To preclude the Government from arguing that Karen was an 

owner of Ashand in 2014 under collateral estoppel, we need to find five

facts. They are:
13

• The ownership issue in this case must be identical to the 

issue decided in bankruptcy court;

• The bankruptcy court was of competent jurisdiction and 

rendered a final judgment on the issue; 

• The Commissioner was a party in the bankruptcy court or 

in privity with a party there;

• The parties actually litigated the ownership issue and the 

resolution of it must have been essential to the bankruptcy

court decision; and 

• The controlling facts and legal principles haven’t changed.

See Hi-Q Personnel, Inc. v. Commissioner, 132 T.C. 279, 289 (2009) 

(citing Monahan, 109 T.C. at 240).

We find that the first element is met. Whether Karen was a 50-

percent shareholder in Ashand is the identical issue here and in the 

Ashand bankruptcy proceedings, albeit with different consequences. 

And we take judicial notice that the bankruptcy court had jurisdiction

over the bankruptcy case.

But the bankruptcy court didn’t issue a final judgment on the 

ownership issue in the chapter 11 case. Remember that by the time 

Karen rediscovered the corporate documents following her husband’s 

death Ashand’s bankruptcy had closed. She sought to reopen that 

bankruptcy and the Department of Justice objected, but the court made 

no ruling that she was a 50-percent shareholder of Ashand.

As for Velappan’s bankruptcy, that case too ended without a final 

judgment on the ownership issue. Karen and the trustee settled her 

claim and she received $486,038 to satisfy her equity interest in Ashand, 

among other claims. The bankruptcy court approved the settlement, but

its final decree makes no mention of the ownership issue. As a result, 

Karen can’t show all of the elements needed to collaterally estop the 

Commissioner. He may therefore argue in this Tax Court case that 

Karen owned half of Ashand in 2014 and—as found above—we find it 

more likely than not that she in fact did. 

[*13]
14

[*14] II. Karen’s Income and Expenses from Ashand

Because we find it more likely than not that Karen was a 50-

percent shareholder and because we’ve determined that the 

Commissioner isn’t equitably or collaterally estopped from arguing that 

she was, we need to figure out Karen’s income from Ashand.

Ashand was an S corporation. An S corporation shareholder 

generally determines her tax liability by taking into account the pro rata

share of the S corporation’s income, losses, deductions, and credits. 

§ 1366(a)(1).

This means Karen has to include in her income half of Ashand’s

income. This is the case even if she didn’t receive that share as a 

distribution back in 2014.

The Commissioner satisfied his initial burden in linking Ashand’s 

income to Karen, see Nelson v. Commissioner, 115 T.C.M. (CCH) 1538, 

1539 (2018), by showing that Karen was a shareholder in Ashand, which 

realized a long-term capital gain in 2014 from the sale of the Ward 

Avenue property.

His determination included basis in the amount of $5.6 million. 

Karen didn’t submit any documents showing improvements to the Ward 

Avenue property that would affect Ashand’s basis, and she has not

argued that the Commissioner’s basis calculations are incorrect. That 

was her burden under Rule 142(a)(1), and she hasn’t carried it.

As for the 2014 rental income from the Ward Avenue property, 

the Commissioner determined that Ashand received $82,279 in net

rental income in 2014 before the building was sold. In arriving at that 

figure, he allowed all of the expenses reported by Ashand in its 

bankruptcy filings. Karen did not offer evidence to refute these 

calculations, either, so we find the Commissioner’s determination on 

this point more likely than not true. See Tokarski v. Commissioner, 87 

T.C. 74, 76–77 (1986). 

We therefore sustain the Commissioner’s calculations of Karen’s

income.

An S corporation shareholder may deduct her share of the

corporation’s expenses. The Commissioner calculated allowable 

expenses of $304,200. Karen offered no evidence to challenge this 
15

[*15] calculation, so that’s the number we’ll use. Half of these expenses 

pass through to Karen.

III. Additions to Tax

That leaves additions to tax. The Commissioner determined 

additions to tax under section 6651(a)(1) for failing to timely file a return 

and section 6651(a)(2) for failing to timely pay the amount shown on a 

return.

Karen did not argue that she had reasonable cause for failure to 

file. And, while she spoke to an accountant during the years of her 

company’s and her husband’s bankruptcies, there’s no evidence that this 

accountant advised her that she didn’t have a filing obligation for 2014.

We’ll sustain the Commissioner’s additions to tax.

IV. Conclusion

Karen was a 50-percent shareholder in Ashand in 2014. She must 

recognize her share of Ashand’s net income. Each side conceded other 

issues, so

Decision will be entered under Rule 155.