TAX COURT OPINION

Case: Robert L. & Valerie J. Hoffman
Docket Number: 23824-08S
Judge: Colvin
Opinion Type: bench
Filed: 11/04/2009
Pages: 6

~i bi Joe l I ra wp a J-P UNITED STATES TAX COURT WASHINGTON, D.C . 20217 , ROBERT L . AND VALERIE J . HOFFMAN, Petitioners, v . ) Docket No . 23824-08S COMMISSIONER OF INTERNAL REVENUE , Respondent . 4 ) 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 to petitioners and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at Los Angeles, California, on October 21, 2009, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for respondent except with respect to the accuracy-related penalty . (Signed ) Diane L. Kroupa Judge Date : Washington, D .C . November 4, 2009 200 ► 3 1 Bench Opinion by Judge Diane L . Kroupa 2 October 21, 200 9 3 Robert L . & Valerie J . Hoffman Docket No . 23824-08S 4 THE COURT : THE COURT HAS DECIDED TO RENDER 5 ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE 6 FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT 7 AND OPINION . THESE ORAL FINDINGS OF FACT AND OPINION 8 SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHE R 9 CASE . 10 This proceeding was heard as a small tax 11 case pursuant to the provisions of section 7463 and 12 Rules 170 through 175 . All section references are to 13 the Internal Revenue Code for 2004, which shall b e 14 referred to as the year at issue, and all Rul e 15 references are to the Tax Court Rules of Practice and 16 Procedure . This bench opinion is made pursuant to the 17 authority granted by section 7459(b) and Rule 152 . 18 Petitioners appeared pro se, and Jenny Casey 19 appeared on behalf of respondent . 20 FINDINGS OF FAC T 21 Certain facts have been stipulated . Th e 22 stipulation of facts, with accompanying exhibits, are 23 incorporated by this reference . The facts are s o 24 found . 25 Petitioners resided in California at the Heritage Reporting Corporatio n (202) 628-4888 4 1 time they filed the petition in this case . 2 Petitioner Robert Hoffman was a 50 percent 3 owner of an S corporation by the name of Tufflex . 4 Petitioner took over as managing partner from his 5 uncle in 1997 . Petitioners reported pass-throug h 6 income from Tufflex for both 2001 and 2002 . 7 Petitioners also timely filed returns for both 2003 8 and 2004 but they did not report any pass-through 9 income from Tufflex for either 2003 or 2004 . 10 Respondent notified petitioners that Tufflex 11 reported to respondent that petitioners had $104,471 12 of pass-through income from Tufflex for 2004 tha t 13 petitioners failed to report . Petitioners then filed 14 amended returns for both 2003 and 2004 . On th e 15 amended return for 2004, petitioners reported the 16 $104,471 of unreported income from Tufflex but on the 17 amended return for 2003, filed on October 23, 2006, 18 petitioners reported a pass-through loss of $187,408 19 from Tufflex . Petitioners also stated on the amended 20 return for 2003 that they were electing t o 21 carryforward the NOL to 2004 rather than carrying back 22 the NOL . 23 Upon examination, respondent allowed the 24 2003 loss from Tufflex, but found that the election to 25 relinquish the carry back period was not timely filed Heritage Reporting Corporatio n (202) 628-4888 5 1 and thus invalid because it was filed on October 23, 2 2006, on the amended return when it needed to hav e 3 been filed by October 15, 2004 . The required filing 4 date was two years earlier and before respondent even 5 began his examination of petitioners' returns . 6 Respondent also found that the 2003 NOL would have 7 been absorbed completely in the two preceding years, 8 2002 and 2001, because petitioners reporte d 9 substantial income during those two preceding years . 10 Respondent issued a statutory deficienc y 11 notice to petitioners determining a $28,043 deficiency 12 in petitioners' tax liability for 2004 and determining 13 that petitioners were liable for a $5,608 .60 accuracy- 14 related penalty due to a'substantial understatement of 15 income tax . 16 Petitioners timely filed a petitio n 17 asserting that they filed the election late solely 18 because respondent took too long to rule on th e 19 carryforward election . Petitioners rely upon Service 20 correspondence that tells them not to take any action 21 while the Service examines their returns . The fact 22 remains that petitioners needed to have made th e 23 election before the Service contacted them about the 24 examination . 25 OPINION Heritage Reporting Corporation (202) 628-4888 6 1 We are asked whether petitioners made a 2 valid election to relinquish the carry back period of 3 an NOL deduction . Generally, an NOL is carried back 4 to each of the two preceding years to offset taxable 5 income . Sec . 172(b)(1) and (2) . Then, to the extent 6 that it has not been absorbed, the NOL is carried 7 forward to each of the next 20 years . Id . 8 A taxpayer can elect to have the NOL carried 9 forward first . Sec . 172(b)(3) . The taxpayer mus t 10 make the election on the return for the year in which 11 the NOL arose . Here the&loss year is 2003 . The due 12 date for making the election is the due date for the 13 return for 2003, including extensions . Id . If the 14 taxpayer failed to make the election on the original 15 return and the return is timely filed, the taxpayer 16 can make the election onean amended return . Se c 17 301 .9100-2(b), Proced .. & Admin . Regs . The amended 18 return must be filed, however, within six months of 19 the due date of the original return for the election 20 to be valid . Id . That date in our case is October 21 15, 2004, which is two years before petitioners filed 22 the amended return for 2003 and made the election . 23 Petitioners' election is therefore invalid . If the 24 carryforward election is'invalid it is treated as if 25 no election was made . Plumb v . Commissioner , 97 T .C . Heritage Reporting Corporation (202); 628-4888 7 1 632, 640 (1991) . Because the entire 2003 NOL wa s 2 absorbed by the two earlier years, no portion of the 3 NOL can be carried forward to 2004, the year at issue . 4 We find no merit to petitioners' argument 5 that respondent caused them to file the election late 6 or that they had to waittfor the Service to rule o n 7 the carryforward election . We do find, however, that 8 petitioners are not liable for the accuracy-related 9 penalty . We found petitioners credible . 10 Unfortunately the law is against them . 11 To reflect the foregoing, decision will be 12 entered for respondent except with respect to the 13 accuracy-related penalty". 14 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF 15 FACT AND OPINION IN THIS'CASE . 16 (Whereupon, at 9 :22 a .m ., the bench opinion 17 in the above-entitled matter was concluded . ) 18 19 20 21 22 2 3 24 25 Heritage Reporting Corporation (202) 628-4888