TAX COURT OPINION

Case: William J. & Rhonda G. Spry
Docket Number: 20506-09
Judge: Colvin
Opinion Type: bench
Filed: 06/30/2010
Pages: 5

6U-b UNITED STATES TAX COUR T WASHINGTON, DC 2021 7 WILLIAM J . & RHONDA G . SPRY , Petitione r v . ) Docket No . 20506-09 . COMMISSIONER OF INTERNA L REVENUE , Respondent O R D E R Pursuant to Rule 152(b), Tax Court 'Rules of Practice and Procedure, it i s ORDERED that . the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph .Robert Goeke at Cincinnati, Ohio, on June 16, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155 . (Signed ) Joseph Robert Goeke Judge Dated : . Washington, D .C . June 30, 2010 SERVED JUL ' 12010 3 1 BENCH OPINION BY JUDGE JOSEPH ROBERT GOEK E 2 WILLIAM J . & RHONDA B . SPRY V . COMMISSIONE R 3 DOCKET NO . : 20506-09 DATE : June 16, 201 0 4 The Court has decided to render ora l 5 findings of fact and opinion in this case and th e 6 following represents the Court's oral findings of fact 7 and opinion . The oral findings of fact and opinion 8 shall not be relied upon as precedent in any other 9 case . 10 Section references in this Bench Opinion ar e 11 to the Internal Revenue Code in effect in the years 12 2006 and 2007 . And rule references are to the Tax 13 Court Rules of Practice and Procedure . This opinion 14 is rendered pursuant to Section 7459(b) and Rule 152 . 15 This case is a regular tax spurt deficiency sow* 16 case in which Respondent has asserted in a notice of 17 deficiency, deficiencies of federal income tax and 18 addition to tax under Section 6662(a) for the years 19 2006 and 2007, to the joint tax liability of th e 20 Petitioners . 21 The issues for trial were Respondent's 22 assertion of unreported income associated with 23 Petitioner William J . Spry's Schedule C business 24 activities and other minor business activities of 25 Petitioner Rhonda G . Spry . Heritage Reporting Corporation (202) 628-4888 4 1 The primary issue involves $20,000 i n 2 alleged unreported income which Respondent determined 3 had been deposited into a business account of William 4 J . Spry and for which Respondent determined there was 5 no non-taxable source . 6 Mr . Spry testified that this money came from 7 a gift in cash he had received from his grandmother in 8 the 1990's and which he had held and never deposite d 9 into a bank account prior to the years in question . 10 While Mr . Spry's explanation indicates somewhat 11 eccentric behavior, the fact that he did not maintain 12 interest bearing accounts in the years in question and 13 in the year 2008 for which the income tax return i s 14 also in the record, corroborates his testimony and 15 Respondent provided no rebuttal to his testimony, we 16 see no basis to refute the credibility of Mr . Spry's 17 testimony in this regard . 18 Regarding the other items of unreported 19 income, these amounts are a series of transactions 20 involving personal expenditures by Rhonda Spry and 21 reimbursements by family members and busines s 22 associates for relatively minor purchases of cosmetics 23 and other items . We see no basis that these amounts 24 should be included in the gross income of Petitioners . 25 And with regard to the additional amounts o f Heritage Reporting Corporation (202) 628-4888 5 1 gross income which are in dispute based upon the 2 notice of deficiency adjustments, we find for th e 3 Petitioners ., Petitioners having conceded depreciation 4 expenses, there's no need for discussion of thos e 5 amounts included in the notice of deficiency in this 6 opinion . 7 The remaining items include facts which are 8 straightforward and agreed to . The Petitioner Rhonda 9 Spry sold a condominium in 2008 for which she began t o 10 receive advance payments of the purchase price as part 11 of rental payments in the last month of 2006 an d 12 throughout 2007 . These amounts total $1,000 in 2006 13 and $12,000 in 2007 . There's no dispute that these 14 amounts are advance payments of the purchase price . 15 The only issue appears to be the timing of th e 16 inclusion of these amounts of income . 17 We find that these amounts were in fac t 18 includable in income beginning in 2006 and so $1,000 19 should be included as capital gain income in the year 20 2006 and $12,000 as capital gain income in the year 21 2007 . We believe these amounts represent return on a 22 capital asset as defined in Section 1221(a), and , 23 therefore, would be subject to the appropriate capital 24 gain rates in the years 2006 and 2007 . 25 A Rule 155 computation will be necessary i n Heritage Reporting Corporation (202) 628-4888 6 1 light of the Petitioners' concession and the Court' s 2 ruling on the issues relative to the underlying income 3 tax deficiencies . 4 The only remaining issue is the addition to 5 tax under Section 6662X(a) . In light of the Court' s 6 analysis of the issues in the case and the fact tha t 7 the unreporting of the capital gain reflect s 8 Petitioners' understanding that they did not have to 9 report the gain on the sale of the condo until 2008 10 when it was finalized, we find a reasonable basis for 11 Petitioners' reporting of the amounts in question . We 12 find the amount of underreporting of income 13 associated with the conceded depreciation deduction t o 14 be relatively minor and not sufficient to assert an 15 addition to tax under the circumstances of this case . 16 Given that analysis, we find tha t 17 Petitioners' are not subject to the addition to tax 18 under Section 6662(a) for either 2006 or 2007 . 19 This concludes the Court's oral findings of 20 fact and opinion in this case . 21 THE COURT : We're in recess . 22 THE CLERK : All rise . 23 (Whereupon, at 11 :58 a .m ., the bench opinion 24 in the above-entitled matter was concluded . ) 25 Heritage Reporting Corporation (202) 628-4888