t c memo united_states tax_court daniel c noonan petitioner v commissioner of internal revenue respondent docket no filed date daniel c noonan pro_se gregory powers for respondent memorandum opinion nameroff special_trial_judge this case was heard pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in petitioner's unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure federal_income_tax in the amount of dollar_figure plus an addition_to_tax under sec_6651 in the amount of dollar_figure the issues for decision are whether petitioner is entitled to joint filing_status and whether petitioner is liable for the addition_to_tax under sec_6651 for failure to timely file his return some of the facts have been stipulated and they are so found the stipulation of facts the supplemental stipulation of facts and the attached exhibits are incorporated herein by this reference at the time of the filing of the petition petitioner resided in thousand oaks california petitioner and melissa noonan mrs noonan were married in and have children from through petitioner and mrs noonan filed joint federal_income_tax returns in date petitioner and mrs noonan separated sometime in mrs noonan commenced judicial proceedings for divorce during mrs noonan and the children resided with mrs noonan's father petitioner and mrs noonan did not reside together at any time during after a long and bitter proceeding the divorce between petitioner and mrs noonan became final in however there is no indication in the record that they were legally_separated during under a decree of separate_maintenance see sec_6013 on or about date petitioner filed for an extension to file the federal_income_tax return together with a payment of dollar_figure on the extension form petitioner indicated that he would claim joint filing_status on date after substantial negotiation petitioner and mrs noonan signed an indemnification and hold harmless agreement the indemnification agreement the indemnification agreement recited that the noonans had not filed tax returns for the years and and that they agreed to file joint tax returns for and reflecting refunds due according to the indemnification agreement petitioner agreed to accept sole financial responsibility for all taxes interest and penalties connected with the federal return in exchange for mrs noonan's agreement to sign a federal tax_return claiming joint filing_status petitioner and mrs noonan further agreed that a california state_income_tax return the california return would be filed after execution of the indemnification agreement but that a federal return would not be filed at that time because petitioner was financially unable to pay the indicated liability petitioner and mrs noonan further agreed that mrs noonan would sign a completed joint federal return which would be retained by hill farrer burrill the law firm until petitioner notified the law firm that he was able to pay the entire tax_liability according to the indemnification agreement when the law firm received money to pay the tax_liability it would then mail the completed and executed federal return to the internal_revenue_service irs when mrs noonan signed the indemnification agreement she intended to file a joint federal return provided petitioner paid all the tax_liabilities associated with taxable_year she would not have signed the indemnification agreement without petitioner's agreement to pay the tax_liabilities for when petitioner and mrs noonan signed the indemnification agreement ron pearson mr pearson at the law firm was mrs noonan's tax counsel after the indemnification agreement was signed petitioner provided mr pearson with a completed federal return mr pearson reviewed the completed federal return and supporting documentation with mrs noonan petitioner and mrs noonan signed the completed federal return and it was retained by the law firm sometime in mr pearson left the law firm and gave the completed and executed federal return to mrs noonan's father who was an attorney of counsel to the law firm on date the joint california return was filed with the franchise tax board in sacramento california the california return was signed by petitioner and mrs noonan a copy of the signed joint federal return was filed with the california return petitioner anticipated receiving a distribution of funds from the divorce proceeding with which he would pay the indicated tax_liability for he confirmed this intention in letters to mr pearson with copies to his ex-wife dated date and date on date he wrote to mrs noonan as follows now that the distribution_of_property is complete i am again notifying you that i am prepared to file the federal tax_return as you know ron pearson gave you the original some time last year which he confirmed to me over the phone let's get this finalized let me know when we can do this on date he again wrote to mrs noonan as follows since you continue to tell me that you cannot locate the federal tax_return i must ask that you do everything in your power to locate it it is important to get this filed and behind us please let me know when you find it or if there is anything i can do to move this along petitioner also testified that he telephoned mrs noonan and unsuccessfully requested the completed and executed federal return so he could file it petitioner never provided the law firm or mrs noonan with the funds to cover the tax_liability on date petitioner received a letter from the irs indicating that he was subject_to backup withholding in connection with the failure_to_file a federal return according to petitioner he filed a federal return in date without payment of the tax_liability shown thereon petitioner has no proof of mailing to show that he filed a federal return at that time the irs has no record of receipt of that return from petitioner in carla burton ms burton a revenue_officer at the oxnard district_office began a taxpayer delinquency investigation to secure a federal_income_tax return from petitioner according to ms burton if there is no return on file the usual procedure is to request an original return from the taxpayer if the return subsequently submitted by the taxpayer is complete the information appears accurate and there are original signatures on the return the usual procedure is to process the return by forwarding it to the teller function of the irs if the taxpayer advises her that a return has been filed she would then request a copy of the return so that she could examine the return to determine if there is a mistake such as a discrepancy in the social_security_number on the return the copy would not be processed because it would not contain original signatures ms burton typically documents in her notes whether she received an original return from the taxpayer ms burton attempted to secure the return from petitioner rather than mrs noonan because his address was contained in her records on date ms burton went to petitioner's residence to secure a federal return petitioner was not at the residence so ms burton left a calling card instructing petitioner to telephone her the next day on date petitioner telephoned ms burton and agreed to send a federal return to her according to ms burton's investigation notes on date ms burton received a federal return from petitioner that return the may return contained petitioner's original signature and a copy of mrs noonan's signature on date petitioner advised ms burton to obtain mrs noonan's original signature on the may return and on date ms burton mailed a letter and copy of the may return to mrs noonan in the letter ms burton advised mrs noonan of the delinquency and missing federal return ms burton also requested mrs noonan's signature on the copy of the may return on date mrs noonan telephoned ms burton and told her that she did not want to sign the return submitted by petitioner because she did not know if the information on the return was correct and because she did not want to incur any liability related to that return mrs noonan also informed ms burton that she received no income in mrs noonan did inquire at that time as to the status of the joint refunds for and during their conversation ms burton allegedly advised mrs noonan to file a separate_return even though she had no income in mrs noonan testified that if she had known that petitioner had paid all tax_liabilities related to taxable_year she would have signed the federal return submitted by petitioner on date ms burton mailed a letter to petitioner advising him that she was unable to obtain mrs noonan's signature and that he should file a federal return as head_of_household or married filing separate ms burton did not file the may return for the noonans on date ms burton mailed mrs noonan a form_1040 for taxable_year prior to mailing the form_1040 ms burton filled in the following information mrs noonan's name and address her social_security_number and zero gross_income mrs noonan completed the form_1040 and returned it to the irs mrs noonan's federal return was received by the irs on date on the return mrs noonan reported no income claimed one exemption and claimed married filing separate status on date petitioner received a letter from the irs indicating that a federal return had not been filed by him on date petitioner filed another copy of the federal return the january return reflecting his original signature and a copy of the signature of mrs noonan the tax shown thereon was paid the original form_1040 prepared in conjunction with the indemnification agreement and retained by the law firm the may return and the january return are identical in content all three reflect the claiming of joint filing_status as well as an exemption for mrs noonan in addition to those for petitioner and the four children the parties have stipulated that the may and january returns each have the original signature of petitioner and a copy of mrs noonan's signature in date petitioner received notification from the irs that the january return had been received according to this letter petitioner had claimed an incorrect amount as estimated_tax payment credits and still owed an additional_amount due to additions to tax for failure to timely file and pay estimated_tax and interest between date and date a refund from mrs noonan's federal_income_tax return and additional_amounts from petitioner's and mrs noonan's separate federal returns were used to satisfy assessed additions to tax and interest for on date petitioner received a letter from the irs indicating that all taxes additions to tax and interest for the taxable_year had been paid filing_status a husband and wife may file a joint_return sec_6013 a joint_return generally must be signed by both spouses sec_1_6013-1 income_tax regs however we have held that a return may be a joint_return even though the signature of one spouse is missing if both spouses intended to file a joint_return 56_tc_1 34_tc_740 affd 325_f2d_1 2d cir hoyle v commissioner tcmemo_1994_592 therefore the resolution of this issue depends upon whether mrs noonan intended that the return filed by petitioner constitute their joint_return it is clear that mrs noonan at all times up until sometime in at the earliest intended to file a joint federal return with petitioner for it was so agreed in the indemnification agreement the joint_return was prepared and signed by mrs noonan and a copy was filed with the joint california return petitioner had attempted to get the law firm or mrs noonan to file the return when he was financially able but was unsuccessful in getting any cooperation petitioner insists that mrs noonan was uncooperative in locating the completed and executed return and that she refused to sign the may return or submit the original return due to their bitter divorce we have previously held we do not consider sec_6013 to affect this issue there does not seem to be any valid reason why ms burton was unable to file the may return respondent had no difficulty filing the identical january return mrs noonan was not obligated to file a return and the document she submitted reflected nothing--no income liability withholding nor credits nevertheless if relevant to consideration of this issue we deem the may return to have been petitioner's return and therefore sec_6013 does not control that a spouse's refusal to sign a joint_return for reasons unrelated to the return does not preclude the return from qualifying as a joint_return federbush v commissioner supra moreover mrs noonan allegedly refused to sign the may return she had received from ms burton because of her belief that the return might contain inaccuracies this excuse is not convincing in that she could have easily compared it to the original in her father's possession and observed that it was exactly the same her other excuse that she did not want to be held liable for any deficiencies relating to the return is equally not convincing in that she has an adequate remedy in contract law should it become necessary we think that her effort to file a separate_return when she was not liable to do so was an effort with or without ms burton's cooperation and advice to frustrate petitioner's attempt to file the joint_return pursuant to their prior agreement her testimony to the contrary was unpersuasive we must however consider the effect of the requirement in the indemnification agreement that petitioner submit funds to the law firm to cover the tax_liability before the law firm would be responsible for filing the return this is a condition_precedent under contract law and failure to comply therewith usually voids the contract obligation in california a property settlement agreement is a contract and the rules of contract law apply in its continued in contract law a tender is an offer of performance the tender when properly made has the effect of placing the other party in default if he refuses to accept it and the party making the tender may rescind or sue for breach of contract or for specific performance where this remedy is available the tender must be for full performance at a proper time and place it must be timely unconditional and in good_faith if the contract calls for the delivery of some specific thing actual production of it at the time of tender is not necessary cal civ proc code sec west the party must merely be able to produce it and must do so when the offer is accepted an offer in writing to pay money or to deliver a written instrument or specific personal_property is if unaccepted equivalent to actual production cal civ proc code sec west finally the person to whom tender is made must specify any objections he may have at the time or defects in form or method are waived cal civ proc code sec west see generally witkin summary of cal law contracts secs and 9th ed in the instant case petitioner did everything possible he could do short of placing the money for the tax_liability in mrs continued interpretation and enforcement cal civ proc code sec west in re marriage of benjamins cal app 4th noonan's hands which in view of their animosity toward each other would not have been a reasonable thing to do mr pearson was no longer at the law firm and payment to the law firm would not be reasonable inasmuch as the original tax_return was no longer at the law firm petitioner had to deal with mrs noonan he wrote to her advised that he was ready and able to pay the tax which he was and requested the return apparently she first stated she could not find it and then refused to turn it over under these circumstances petitioner complied with the terms of the indemnification agreement his tender offer to pay the tax was unreasonably rejected and therefore the condition_precedent has been satisfied accordingly we need not consider whether to attribute to mrs noonan an intent to file jointly based upon the inclusion of her share of community_income in the return submitted by petitioner where de_minimis community_income may have been included in the return see 48_tc_496 27_tc_270 affd 251_f2d_44 8th cir based on the record we conclude that mrs noonan intended to file a joint_return with petitioner for thus petitioner is entitled to joint filing_status for decision will be entered for petitioner in view of our conclusion on the first issue the sec_6651 issue is moot and requires no further discussion


internal_revenue_service number release date index number 468a ---------------------- -------------------------- ----------------------------------- --------------------------- --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc psi b06 plr-112689-07 date date ---------------------------------------------------------- re revised schedule of ruling amounts under 468a taxpayer -------------------------------------- ----------------------- ------------------------------------------------------------ ---------------------------------------------------- ------------------------------------------------ --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- plant commission x commission y commission z director dear -------------- this letter responds to a letter submitted date requesting a revised schedule of ruling amounts pursuant to sec_1_468a-3 of the income_tax regulations following a reduction by commission y as of ------------------- of the amount of decommissioning costs to be included in cost of service this request was held in abeyance pending the request dated date that the service extend the time to request this amended schedule pursuant to ' of the procedure and administration regulations the request to extend the time was granted on date and consideration of your request for a revised schedule of ruling amounts followed taxpayer represents the facts and information relating to its request for a revised schedule of ruling amounts as follows plr-112689-07 taxpayer is a subsidiary of parent taxpayer has a direct ownership_interest in plant the estimated base cost for decommissioning plant is based on an independent study and the proposed method of decommissioning the plant is method taxpayer is subject_to the jurisdiction of commission x commission y and commission z as well as two cooperatives which are not relevant for these purposes the service issued to taxpayer a revised schedule of ruling amounts on -------------------- ------- amounts for commission x and commission z are not specifically reviewed herein the schedule of ruling amounts approved by the service on ---------------------- governs the review period for the commission x and commission z ruling amounts these amounts are reproduced in the approved schedule of ruling amounts below in order to reflect the total annual ruling_amount which remains in effect for commission x and commission z taxpayer and commission y entered into an agreement under which taxpayer no longer collected decommissioning amounts from the customers of commission y as of ------------------- taxpayer seeks a revised schedule of ruling amounts as required by sec_1_468a-3 to reflect that agreement payments made to a qualified decommissioning fund however ' 468a b limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a provides that a taxpayer may elect to deduct the amount of sec_468a provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under ' 468a d as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within months after the close of the tax_year plr-112689-07 sec_1_468a-1 provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under ' 468a-1 b of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest sec_1_468a-1 provides that the term qualifying interest means a leasehold interest in any portion of a nuclear power plant if a the holder of the leasehold interest is subject_to the jurisdiction of a public_utility commission with respect to such portion of the nuclear power plant b the holder of the leasehold interest is primarily liable under federal or state law for decommissioning such portion of the nuclear power plant and c no other person establishes a nuclear decommissioning fund with respect to such portion of the nuclear power plant sec_1_468a-2 provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or the ruling_amount applicable to the nuclear decommissioning fund for such tax_year sec_1_468a-3 provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under ' 468a-3 a the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under ' 468a-3 b the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes plr-112689-07 sec_1_468a-3 provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes sec_1_468a-3 provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under ' 468a-3 d the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to ' 468a-3 e the estimated date on which the nuclear plr-112689-07 power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and determinations used in establishing or approving the amount sec_1_468a-3 enumerates the information required to be contained in a request for a schedule of ruling amounts filed by a taxpayer in order to receive a ruling_amount for any taxable_year sec_1_468a-3 provides that any taxpayer that has previously obtained a schedule of ruling amounts can request a revised schedule of ruling amounts such a request must be made in accordance with the rules of ' 468a-3 h the internal_revenue_service shall not provide a revised schedule of ruling amounts applicable to a taxable_year in response to a request for a schedule of ruling amounts that is filed after the deemed payment deadline date for such taxable_year sec_1_468a-3 provides that a taxpayer is required to request a revised schedule of ruling amounts if any public_utility commission that establishes or approves rates for the furnishing or sale of electric energy generated by a nuclear power plant to which a nuclear decommissioning fund relates reduces the amount of decommissioning costs to be included in the cost of service for any taxable_year sec_1_468a-3 provides that any taxpayer that is required to request a revised schedule of ruling amounts by reason of any of the actions described in sec_1_468a-3 must file such request on or before the deemed payment deadline date for the first taxable_year in which the rates that reflect the action become effective sections a and c of the energy act of eliminated for taxable years after date the investment restrictions contained in ' 468a e c sections b and c of the energy act of revised ' 468a e by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date we have examined the representations and information submitted by the taxpayer in relation to the requirements set forth in ' 468a and the regulations plr-112689-07 thereunder based solely upon these representations of the facts we reach the following conclusions taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under ' 468a-1 b of the regulations commission y has decreased the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes taxpayer has timely requested a revised schedule of ruling amounts as required under ' 468a-3 i iii a of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of 468a-3 a and of the regulations the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the decommissioning costs applicable to the fund or the ruling applicable to the fund as set forth under ' 468a- b of the regulations based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts satisfies the requirements of ' 468a of the code approved schedule of ruling amounts for taxable years ------- through ------- - commission x commission y and commission z1 year ------------ - ------------ - ------------ comm x -------------------- ---- -------------------- ---- -------------------- comm y ------------------- - ------------- comm z -------------------- -------------------- ------------- -------------------- total ---------------------- -- ---------------------- -- ---------------------- amounts for commissions x and z are not specifically reviewed herein and are merely reprinted to arrive at the amount for the total ruling_amount for purposes of the review and revision under sec_1 468a- i the date of the schedule of ruling amounts approved by the service on ---------------------- governs the review period for the commission x and commission z ruling amounts plr-112689-07 - ------------ - ------------ - ------------ - ------------ - ------------ - ------------ - ------------ - ------------ - ---- -------------------- ---- -------------------- ---- -------------------- ---- -------------------- ----- -------------------- ----- -------------------- ----- -------------------- ----- -------------------- ----- ------------- ------------- ------------- ------------- ----- ----- ----- ----- ----- ----- ------------- ------------- ----- ------------- ------------- ----- --- ---------------------- -- ---------------------- -- ---------------------- -- ---------------------- --- ---------------------- --- ---------------------- --- ---------------------- --- ---------------------- --- approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued if any of the events described in ' 468a-3 i iii occur in future years the taxpayer must request a review and revision of the schedule of ruling amounts generally the taxpayer is required to file such a request on or before the deemed payment deadline date for the first taxable_year in which the rates reflecting such action became effective when no such event occurs the taxpayer must file a request for a revised schedule of ruling amounts on or before the deemed payment deadline of the tenth taxable_year following the close of the tax_year in which the most recent schedule of ruling amounts was received except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify plr-112689-07 for purposes of the deduction under the provisions of ' 468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office copies of this letter are being sent to your authorized representatives we are also sending a copy of this letter_ruling to the director pursuant to ' 468a-7 a a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely peter c friedman senior technician reviewer branch associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes--


t c memo united_states tax_court mark r and diane r webb petitioners v commissioner of internal revenue respondent docket no filed date michelle turpin for petitioners james b ausenbaugh for respondent memorandum opinion couvillion special_trial_judge this case was heard pursuant to sec_7443a and rule sec_180 sec_181 and sec_182 respondent determined a deficiency in federal_income_tax of dollar_figure and an addition_to_tax under sec_6651 in the unless otherwise indicated section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure amount of dollar_figure with respect to petitioners' tax_year petitioners conceded all the adjustments in the notice_of_deficiency the issues for decision are whether petitioners during realized a gain_or_loss under sec_1001 on the foreclosure sale of real_estate if petitioners realized a loss whether petitioners are entitled to a credit or refund for overpayment of their income_tax under sec_6512 and whether petitioners are liable for the addition_to_tax under sec_6651 at trial the parties submitted this case fully stipulated all of the stipulated facts are so found and those facts with the annexed exhibits are incorporated herein by reference at the time the petition was filed petitioners' legal residence was alpine utah petitioners filed their federal_income_tax return on date on date petitioners filed an amended_return for claiming an ordinary_loss of dollar_figure resulting from the foreclosure sale of real_estate consisting of a lot and improvements owned by mark r webb petitioner on these adjustments consist of the following a reduction in depreciation of dollar_figure a reduction in car and truck expenses of dollar_figure a reduction of schedule c interest_expense of dollar_figure a reduction of telephone expenses of dollar_figure and a reduction in schedule a interest of dollar_figure petitioners also conceded that they were not entitled to a personal_exemption deduction for petitioners' son gregg there is a dispute as to whether petitioners conceded the addition_to_tax under sec_6651 that issue is dealt with in the body of the opinion the amended_return petitioners claimed a refund of dollar_figure the notice_of_deficiency did not take into account the amended_return filed by petitioners nor does it appear that the internal_revenue_service accepted the amended_return and refunded the claimed amount to petitioners however in their petition petitioners while conceding the adjustments in the notice_of_deficiency see supra note alleged they realized an ordinary_loss based upon the foreclosure sale as reported on their amended_return and prayed that the court determine that petitioners are due a refund in an amount to be determined by the court in an amendment to answer respondent denied that petitioners realized a loss on the foreclosure sale but instead affirmatively alleged that petitioners realized an ordinary gain from the foreclosure sale accordingly respondent alleged an increase in the deficiency in income_tax from dollar_figure to dollar_figure and an increase in the addition_to_tax under sec_6651 from dollar_figure to dollar_figure no reply was filed by petitioners to respondent's affirmative allegations nor did respondent move under rule c to have the affirmative allegations deemed admitted accordingly the affirmative allegations are deemed denied rule c on date petitioner and michael k kelly kelly organized silvercrest of america corp silvercrest an s_corporation with each owning percent of the stock on date silvercrest acquired by warranty deed a lot in the sundance recreation resort located at provo canyon utah on that same day the lot was conveyed by silvercrest to kelly by warranty deed finally on date kelly conveyed the lot by warranty deed to petitioner dan a waddell waddell and michael e truman truman as tenants in common on date petitioner waddell and truman sometimes referred to as the debtors borrowed dollar_figure from richards- woodbury mortgage corp richards a utah corporation for construction financing to build a luxury home home on the lot the debtors were each personally liable jointly and severally for the full loan amount and the loan note note was secured_by a mortgage on the lot richards negotiated the note to the citizens banking co citizens without_recourse after its construction the home was to be sold to timbercrest a limited_partnership organized by silvercrest petitioner and kelly to purchase maintain and lease the home silvercrest petitioner and kelly were the general partners of timbercrest thereafter limited partners investors were admitted into the partnership each limited_partner made a capital_contribution of dollar_figure per unit payable partly in cash and in large part by execution of promissory notes to the partnership the general partners owned percent of the partnership's capital and percent was owned by the limited partners profits and losses were allocated in the same ratios as a result of the passive loss limitations enacted in the tax_reform_act_of_1986 publaw_99_514 100_stat_2085 the investors were unable to deduct most of the losses allocated to them by timbercrest after during all investors stopped making payments on the promissory notes they had executed in favor of timbercrest as their capital contributions to the partnership the general partners made no additional capital contributions to the partnership consequently the partnership defaulted in payments to its creditors the general partners foreclosed the limited_partnership interests and the partnership was terminated as of date with the demise of the partnership the debtors which included petitioner who were the makers of the dollar_figure mortgage note likewise defaulted on the note consequently citizens as holder of the note instituted foreclosure proceedings against the debtors under utah code ann sec utah code ann sec provides there can be one action for the recovery_of any debt or the enforcement of any right secured solely by mortgage upon real_estate which action must be in accordance with the provisions of this chapter judgment shall be given adjudging the amount due with costs and disbursements and the sale of mortgaged property or some part thereof to satisfy said amount and accruing costs and directing the sheriff to proceed and sell the same according to the provisions of law relating to sales on execution and a special execution or order of sale shall be issued for that purpose in date a utah state court rendered judgment in favor of citizens and against the debtors in the amount of dollar_figure which included principal interest attorney's_fees taxes and court costs the judgment recognized the mortgage lien and privilege on the subject real_estate and ordered the sale of the property and application of the proceeds toward satisfaction of the judgment pursuant to the judgment the local county sheriff seized advertised and sold the property at public auction on date the property was sold and adjudicated to citizens for dollar_figure after retaining dollar_figure for his expenses the sheriff remitted dollar_figure as the net_proceeds from the sale as to which he prepared a written return that stated that after application of the dollar_figure on the judgment there remained a deficiency balance in the amount of dollar_figure dollar_figure the total amount due under the judgment less dollar_figure the net_proceeds from the sale utah code ann sec provides if it appears from the return of the officer making the sale that the proceeds are insufficient and a balance still remains due judgment therefor must then be docketed by the clerk and execution may be issued for such balance as in other cases but no general execution shall issue until after the sale of the mortgaged property and the application of the amount_realized as aforesaid the parties agree that the clerk of the utah court failed to docket the judgment pursuant to this statutory provision however citizens never released petitioner from his obligation on the judgment the judgment was never canceled from the public records and the parties stipulated that citizens bank expected webb petitioner to pay the deficiency balance at some point in waddell one of the debtors filed for bankruptcy and was discharged from his obligation on the note also sometime in truman another debtor filed for bankruptcy and was discharged from his obligation on the note there is no evidence that either of these debtors made any payments on the note and or the judgment the parties have stipulated that at the time of the foreclosure sale the adjusted_basis of the foreclosed property was dollar_figure and the property had a fair_market_value of approximately dollar_figure in date following the sale and adjudication of the property to citizens petitioner entered into an agreement with citizens whereby petitioner agreed to be the listing agent for the sale of the property under the agreement petitioner would under utah law petitioner had the right to redeem the property sold at the foreclosure and the sheriff's sale was not final until months after the sale utah r civ p petitioner did not redeem the property and the sale became final on date accordingly petitioner did not deduct his loss on the foreclosure sale of the property until tax_year the year the sale became final see r o'dell sons co v commissione169_f2d_247 3d ci8_tc_1165 respondent does not challenge that the sale was final in and that is the proper year for recognizing any gain_or_loss from the sale for tax purposes earn a commission of dollar_figure for each percent interest he sold in the property by date the entire property was sold for dollar_figure through petitioner's efforts petitioner earned a commission of dollar_figure for the sale of the property which was credited by citizens on the deficiency balance owing under the judgment citizens later credited the judgment by an additional dollar_figure the consideration for this credit is not explained in the stipulation on date petitioners filed a bankruptcy petition under chapter of the bankruptcy code in the united_states bankruptcy court district of utah central division in the bankruptcy petition petitioners listed the deficiency judgment balance owing to citizens as an unsecured claim without priority in the amount of dollar_figure on date petitioners received a discharge_in_bankruptcy and the indebtedness owing to citizens was completely discharged as stated above on their amended federal_income_tax return petitioners claimed an ordinary_loss of dollar_figure on the foreclosure sale of the lot respondent contends that petitioners realized an ordinary gain of dollar_figure on the foreclosure sale sec_1001 provides in general that the gain from the sale_or_other_disposition of property is the excess of the amount_realized over the adjusted_basis of such property and that the loss shall be the excess of adjusted_basis over the amount_realized the sale of mortgaged property at a foreclosure sale is treated as a sale_or_exchange from which the mortgagor may realize gain_or_loss under sec_1001 311_us_504 the parties agree that the foreclosure sale of the lot constituted a sale for tax purposes id furthermore the parties stipulated that petitioner's basis in the foreclosed property was dollar_figure in dispute is the amount_realized on the foreclosure sale that is to be applied against petitioner's basis to determine the amount of gain_or_loss from the sale petitioners contend that pursuant to 99_tc_197 affd aftr2d par the amount_realized is the amount of the foreclosure sale proceeds or dollar_figure resulting in a loss to petitioners of dollar_figure which is the excess of petitioner's basis of dollar_figure over the amount_realized of dollar_figure respondent on the other hand contends that petitioners realized a gain on the foreclosure sale under the aizawa case more specifically respondent contends that the amount_realized must be the lesser_of the fair_market_value of the property or the amount of the debt respondent bases this argument on the ground that after the foreclosure sale petitioner was discharged from any further liability on the deficiency or unpaid portion of the judgment therefore under sec_1_1001-2 income_tax regs the deficiency or unpaid portion of the judgment constituted income from the discharge_of_indebtedness and therefore did not constitute an amount_realized for purposes of gain_or_loss in the aizawa case property subject_to a recourse mortgage was sold at a foreclosure sale and a deficiency judgment was obtained the issue in the aizawa case was the same as in this case ie the amount_realized on the foreclosure sale in the aizawa case respondent argued that the amount_realized was the amount of the unpaid mortgage principal before the foreclosure without regard to the deficiency the court rejected respondent's argument because it requires petitioners to treat as money received an amount of their unpaid mortgage principal obligation from which they have not yet been discharged leaving to the future the tax consequences of any subsequent payments or settlement of the deficiency judgment for less than the unpaid amount aizawa v commissioner supra pincite emphasis added respondent argues that the gain realized by petitioners wa sec_5 dollar_figure respondent calculated that amount by comparing the fair_market_value of the property dollar_figure with the amount of the debt dollar_figure since the amount of the debt is the lesser amount respondent argues that the amount_realized was dollar_figure the agreed basis of the property was dollar_figure therefore the gain realized was dollar_figure the court questions respondent's use of dollar_figure as being the correct amount of the debt that figure was the unpaid principal on the note at the time of the foreclosure proceeding in addition to the unpaid principal the utah court decreed an additional_amount due and owing of dollar_figure for accrued interest attorney's_fees taxes and court costs the amount of the debt therefore was dollar_figure as set out in the judgment rather than the dollar_figure argued by respondent the court reasoned the key to the resolution of the issue before us lies in the recognition that in this case there is a clear separation between the foreclosure sale and the unpaid recourse_liability for mortgage principal which survives as part of a deficiency judgment id pincite the court held in the aizawa case that where there is a foreclosure sale and an unpaid recourse_liability survives as a deficiency judgment and continues as an enforceable liability against the debtor the amount_realized is the foreclosure proceeds and not the amount of the recourse_liability the court also noted that there was no dispute that the foreclosure proceeds in that case represented the fair_market_value of the property respondent argues that there are two main differences between this case and the aizawa case that require a different result here respondent first points out that unlike the aizawa case the fair_market_value of the property in this case exceeded the foreclosure price secondly respondent argues that unlike the aizawa case no portion of petitioner's unpaid recourse_liability for the mortgage survived under utah law as part of a deficiency judgment at the close of based on the discussion that follows it is not necessary for the court to address whether it is relevant that the fair_market_value of the property exceeded the amount_realized in the foreclosure sale respondent argues that citizens did not obtain a deficiency judgment against petitioner under utah's one-action foreclosure law utah code ann sec and that as a result of the rendition of the judgment the note on which the judgment was obtained became extinguished as a matter of law respondent further argues that there was no enforceable deficiency judgment because a technical requirement of utah state law was not followed after the foreclosure sale therefore the unpaid deficiency under the judgment was discharged and did not survive as an enforceable obligation against petitioner relying on 461_us_300 and 918_f2d_1251 6th cir affg tcmemo_1986_463 respondent contended that if there is no deficiency judgment against petitioner the amount_realized was the amount of the unpaid mortgage dollar_figure ostensibly under the theory that petitioner was relieved of his obligation to pay an indebtedness for that amount citizens' foreclosure proceedings were instituted against petitioner pursuant to utah's one-action statute utah code ann sec under this statute there can be but one action for the recovery_of any debt secured_by a mortgage bank of ephraim v davis p 2d utah citing salt again see supra note this argument fails to take into consideration the accrued interest and other costs that were due under the judgment lake valley loan trust co v millspaugh utah p a judgment was rendered in favor of citizens against petitioner under this statute on date in the amount of the unpaid principal balance on the note plus interest and costs under the same judgment a deficiency judgment was adjudged against petitioner for the full amount of any sum owing to citizens under the note after the proper application of the proceeds of the sale of the property after the sale a return of the officer was made showing that there was a deficiency balance the formality of docketing the judgment by the clerk of the utah state court was not followed as required by utah code ann sec this failure to docket is the technicality respondent relies on respondent's argument that there was no surviving deficiency judgment against petitioner is based on utah code ann sec in pertinent part that statute provides that if it appears from the return of the officer making the sale that the proceeds are insufficient and a balance still remains due judgment therefore must then be docketed by the clerk respondent argues that there was no deficiency judgment in this case because of the failure of the clerk to docket the judgment and that an undocketed judgment is a nullity respondent cited no authority that under utah state law an undocketed judgment is a nullity respondent cited in re bundy's estate p 2d utah wherein the utah supreme court held that under the pertinent utah rules of civil procedure a judgment is complete and is deemed entered for all purposes when the same is signed and filed further respondent cited first natl bank v haymond p 2d utah wherein the utah supreme court stated that the clerk must as a mere ministerial duty enter a deficiency judgment against the proper parties when the return of the sale shows that the mortgaged property is not sold for an amount sufficient to pay the amount due and owing emphasis added the facts that the failure to docket the judgment was not an act that was required of citizens but was required of the clerk of court that such an act of omission by the clerk was a ministerial omission that there was a return by the sheriff a public record which clearly reflected a deficiency balance on the judgment following the foreclosure sale that both citizens and petitioner recognized there was an enforceable unpaid balance due after the foreclosure sale that subsequent payments were credited to the unpaid deficiency and that the remaining unpaid balance was listed and thereafter discharged by a bankruptcy court all lead this court to conclude and hold that following the foreclosure sale citizens held a legally enforceable deficiency judgment against petitioner and that this liability existed despite the failure of a public official to perform a purely ministerial duty the unpaid deficiency therefore survived the foreclosure sale having concluded that there was a valid and enforceable deficiency judgment against petitioner following the foreclosure sale and that therefore petitioner's liability was not extinguished as a result of the failure of the clerk of court to docket the judgment this case cannot be distinguished from the aizawa case accordingly based on the aizawa case the amount_realized by petitioners on the foreclosure sale was the sum of dollar_figure the amount for which the property was sold at public auction the excess of petitioner's basis of dollar_figure over the amount_realized of dollar_figure yields a loss of dollar_figure to petitioners petitioners therefore are sustained on this issue the second issue in view of the court's holding that petitioners realized a loss on the foreclosure is whether petitioners are entitled to a credit or refund for an overpayment of their taxes this court has jurisdiction under sec_6512 and b to determine an overpayment of taxes and the amount of such overpayment to be credited or refunded for any year before the court on their federal_income_tax return petitioners' federal_income_tax after taxes withheld was dollar_figure on date petitioners filed an amended income_tax return on their amended federal_income_tax return petitioners claimed a loss of dollar_figure on brief however petitioners argued that they realized a loss on the foreclosure sale in the amount of dollar_figure the court agrees that dollar_figure is the correct amount of the loss for reporting the loss that was the principal issue in this case and claimed a refund of dollar_figure although petitioners have conceded several adjustments that would increase their taxable_income the total of these adjustments is far less than the dollar_figure loss realized by them in the foreclosure sale of their property the amended_return was filed within the limitation provision of sec_6512 prior to issuance of the notice_of_deficiency petitioners therefore overpaid their taxes for and therefore are entitled to a credit or refund resulting from this overpayment the amount of the credit or refund will be calculated under rule the third issue is whether petitioners are liable for the addition_to_tax under sec_6651 for their failure_to_file timely their federal_income_tax return petitioners' return was date stamped as having been received by the internal_revenue_service irs center at ogden utah on date attached to the return is irs form_2688 application_for additional extension of time to file wherein petitioners requested an extension of time until date to file their return this extension was approved as stated above however petitioners did not file their return until date therefore their return was delinquent the addition_to_tax under sec_6651 is imposed where there is failure to timely file a tax_return unless it is shown that the failure to timely file is due to reasonable_cause and not due to willful neglect petitioners presented no evidence to establish reasonable_cause for the delinquent filing of their return respondent therefore is sustained on this issue however the addition_to_tax under sec_6651 i sec_5 percent of the amount_required_to_be_shown_as_tax on the return sec_6651 provides that for purposes of computing the addition_to_tax the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax the original return filed by petitioners for showed a tax of dollar_figure and federal income taxes withheld of dollar_figure that left a balance due of dollar_figure the return as noted earlier was filed on date in the amended_return filed by petitioners for on which the foreclosure_loss was claimed petitioners' tax was shown to be dollar_figure rather than dollar_figure as shown on the original return petitioners presented no evidence to show that the amount of tax required to be shown on the return was paid on or before the due_date prescribed for payment of the tax except for dollar_figure in withheld taxes it is evident and the court holds that petitioners are not entitled under sec_6651 to a reduction in the amount of tax required to be shown on the return by the amount of taxes they paid when they filed their delinquent_return for to determine the amount of the addition_to_tax under sec_6651 and the amount of the credit or refund decision will be entered under rule


t c memo united_states tax_court jose m curet petitioner v commissioner of internal revenue respondent docket no filed date jose m curet pro_se gordon p sanz and lewis a booth ii for respondent memorandum findings_of_fact and opinion kerrigan judge respondent determined a deficiency of dollar_figure and additions to tax of dollar_figure and dollar_figure under sec_6651 and respectively with respect to petitioner’s federal_income_tax for tax_year unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar the issues for consideration are whether petitioner is liable for self- employment_tax under sec_1401 and additions to tax under sec_6651 and findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the exhibits received into evidence are incorporated herein by this reference petitioner resided in puerto rico when he timely filed his petition during petitioner lived and worked as a consulting engineer in puerto rico petitioner filed a form_482 individual_income_tax_return with the commonwealth of puerto rico for with his return he included a schedule m professions and commissions income which is the equivalent of the schedule c profit or loss from business on the form_1040 u s individual_income_tax_return on his schedule m petitioner reported gross_income of dollar_figure and expenses of dollar_figure resulting in net_income from his trade_or_business of dollar_figure petitioner failed to file timely a form 1040-ss u s self-employment the parties do not dispute that petitioner was a resident of puerto rico and a citizen_of_the_united_states who was required to file a form_482 tax_return with the internal_revenue_service for on date respondent issued a notice_of_deficiency respondent attached a form 4549-a income_tax examination changes unagreed and excepted agreed a form a explanation of items and a form sec_6020 certification to the notice_of_deficiency respondent provided an account transcript for tax_year which showed petitioner had not reported or paid any federal income taxes for including self-employment taxes i deficiency opinion generally the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous rule a 290_us_111 under sec_7491 in certain circumstances the burden_of_proof may shift from the taxpayer to the commissioner petitioner has not claimed or shown that he meets the requirements of sec_7491 to shift the burden_of_proof to respondent as to any relevant factual issue the burden_of_proof remains with petitioner u s individual citizens and residents are subject_to federal income_taxation on their taxable_income on a worldwide basis see sec_1 265_us_47 but a bona_fide_resident_of_puerto_rico for the entire taxable_year is not subject_to federal taxation with respect to items of income that are sourced within puerto rico except for amounts received for services as an employee of the u s government see sec_933 notwithstanding the exemption provided by sec_933 an individual resident of puerto rico is not exempt from self-employment_tax see sec_1401 sec_1_1402_a_-9 income_tax regs residents of puerto rico are required to compute net_earnings_from_self-employment in the same manner as a u s individual without regard to sec_933 see sec_1402 sec_1_1402_a_-9 income_tax regs see also sec_1_1402_a_-1 income_tax regs defining the term net_earnings_from_self-employment to include the gross_income derived in a taxpayer’s trade_or_business less the deductions allowed by chapter that are attributable thereto petitioner argues that he was not subject_to any u s tax for because he was a resident of puerto rico petitioner had net_earnings_from_self-employment as evidenced by his schedule m that he filed along with his form_482 although he was a resident of puerto rico during per sec_1402 petitioner was not exempt from u s self-employment_tax we conclude petitioner is liable for self-employment_tax ii additions to tax a sec_6651 respondent determined that petitioner is liable under sec_6651 for an addition_to_tax for failure to timely file a return for as discussed above petitioner was required to file a form 1040-ss the addition_to_tax for failure_to_file a timely return under sec_6651 applies to self-employment_tax returns sec_6017 sec_6651 imposing addition_to_tax i n case of failure_to_file any return required under authority of subchapter_a of chapter other than part iii thereof under sec_7491 the commissioner bears the burden of producing evidence with respect to the liability of the taxpayer for any penalty see also 116_tc_438 the parties agree that petitioner did not file a form 1040-ss therefore respondent has met his burden of production b sec_6651 respondent also determined that petitioner is liable under sec_6651 for an addition_to_tax for failure to timely pay tax shown on a return for the year in issue the sec_6651 addition_to_tax applies only when an amount of tax is shown on a return filed by the taxpayer or prepared by the secretary sec_6651 g 120_tc_163 aff’d without published opinion a f t r 2d ria 3d cir when a taxpayer has not filed a return the sec_6651 addition_to_tax may not be imposed unless the secretary has prepared a substitute for return that satisfies the requirements of sec_6020 see 127_tc_200 aff’d 521_f3d_1289 10th cir respondent has shown and petitioner does not dispute that petitioner failed to pay his federal_income_tax obligations for respondent has established that the secretary prepared a substitute for return for that satisfies requirements of sec_6020 by providing a form 4549-a a form 886-a and a form for tax_year see cabirac v commissioner t c pincite respondent has met the burden of production c reasonable_cause the additions to tax under sec_6651 and apply once the commissioner has met his burden of production unless the failure to timely file and the failure to timely pay were due to reasonable_cause and not due to willful neglect the taxpayer bears the burden of establishing reasonable_cause higbee v commissioner t c pincite reasonable_cause is established if the taxpayer exercised ordinary business care and prudence but was nevertheless unable to timely file or timely pay the tax due on his return sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure or reckless indifference toward filing or payment obligations 469_us_241 petitioner claims he did not file a return or pay the tax due because he believed that as a resident of puerto rico he did not have a u s federal filing or payment obligation he testified that he consulted with a puerto rican tax adviser to prepare his tax returns his adviser did not testify at trial and petitioner did not otherwise establish that the adviser was a competent professional who had sufficient expertise to justify reliance he provided necessary and accurate information to the adviser and he actually relied in good_faith on the adviser’s judgment see 115_tc_43 aff’d 299_f3d_221 3d cir see also 98_tc_294 his explanations do not suffice to demonstrate the ordinary business care and prudence the regulations require we sustain the additions to tax under sec_6651 and any contentions we have not addressed at irrelevant moot or meritless to reflect the foregoing decision will be entered for respondent


t c memo united_states tax_court david j boyd petitioner v commissioner of internal revenue respondent docket no filed date david j boyd pro_se louis h hill for respondent memorandum opinion couvillion special_trial_judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for the year and an addition_to_tax of dollar_figure under sec_6651 the issues for decision are whether petitioner is entitled to claim itemized_deductions on schedule a itemized_deductions for whether petitioner is entitled to deduct certain trade_or_business_expenses for on schedule c profit or loss from business in excess of amounts allowed by respondent and whether petitioner is liable for the addition_to_tax under sec_6651 for failing to file his federal_income_tax return for timely petitioner’s liability for additional self-employment_tax is a computational issue dependent on the court’s holding on the issues described some of the facts were stipulated and those facts with the annexed exhibits are so found and are incorporated herein by reference at the time the petition was filed petitioner's legal residence was cincinnati ohio petitioner was married during the year at issue petitioner is an attorney engaged in the practice of law in cincinnati he began his law practice as a sole_proprietorship in date he incorporated his practice in ohio under that state’s legal professional association statute however no valid corporate return was filed on behalf of petitioner’s professional_corporation for unless otherwise indicated all section references are to the internal_revenue_code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure petitioner mailed a form_1120 u s_corporation income_tax return to the internal_revenue_service on behalf of his professional_corporation for that return reflected no taxes due however the return was returned to petitioner as being incomplete no further attempt was made on behalf of the continued petitioner’s law practice involved litigation in which he regularly made court appearances throughout the state of ohio he had an american express card that he used exclusively for business purposes his law practice expenses such as meals hotel and entertainment_expenses were charged to the credit card petitioner was provided monthly statements and an annual summary of expenses charged to the card petitioner did not offer into evidence any american express statements or the annual summary petitioner and his wife owned two family vehicles petitioner used both of these vehicles in his law practice and incurred vehicle expenses going to court and keeping client appointments in different parts of ohio other vehicle expenses were incurred in commuting to his office and paying parking charges at trial petitioner claimed a total of dollar_figure in car and truck expenses which he derived by taking a reasonable proportionate share of his lease payments auto repairs oil changes tuneups tires and other vehicle expenses from his check records he also claimed dollar_figure in parking expenses continued professional_corporation to perfect the form_1120 for respondent has not raised as an issue that the law practice activity conducted by petitioner was an activity of the professional_corporation this case therefore is based upon petitioner’s activity in the practice of law rather than that of a professional_corporation petitioner did not keep a log in the use of his vehicles nor did he produce any other contemporaneous record of his car and truck expenses the business use of his vehicles or parking expenses petitioner also claimed expenses in taking clients out for meals he did not keep contemporaneously prepared records in connection with these expenses at trial he claimed dollar_figure for meals expenses which he determined using his annual_statement from american express as previously noted the credit card statement was not produced at trial petitioner’s claimed expenses also included expenses related to playing golf with clients he maintained a membership at the cincinnati athletic club for which he paid dues petitioner did not keep a record of these client entertainment_expenses petitioner had a professional relationship with a local union the united food and commercial workers union ufcw local incident to this relationship petitioner was allowed membership in the union in order to obtain favorable health_insurance_coverage for himself and his wife the union dues were dollar_figure per month which amounted to dollar_figure a year petitioner substantiated only dollar_figure of union dues paid to ufcw local during petitioner claimed as business_expenses charitable_contributions to various organizations that solicited him at his law office he stated that he made the contributions in my capacity as an attorney at trial petitioner claimed dollar_figure in such contributions but provided no documentation to support payment of such amount petitioner filed his federal_income_tax return original return with the internal_revenue_service on date as further explained below he later filed an amended_return petitioner claimed a filing_status of married_filing_separately to avoid collection activities against his wife petitioner’s wife filed separately for and claimed the standard_deduction nothing in the record indicates that petitioner was separated or living apart from his wife on his original return petitioner reported no wage income on line of form_1040 he reported trade_or_business income on line in the amount of dollar_figure he claimed the standard_deduction reported dollar_figure in self-employment_tax and claimed one-half of the self-employment_tax or dollar_figure as a deduction on the attached schedule c petitioner reported dollar_figure in gross_receipts and claimed dollar_figure in expenses from his law practice these schedule c expenses included dollar_figure in car and truck expenses dollar_figure in travel_expenses dollar_figure as the deductible portion of meals and entertainment_expenses and dollar_figure in other expenses the other expenses included dollar_figure for memberships dollar_figure for parking and dollar_figure for charitable_contributions petitioner filed an amended federal_income_tax return for on date on this amended_return petitioner reported dollar_figure in salary and wage income the amended_return included a schedule a on which petitioner claimed an itemized_deduction of dollar_figure for taxes and interest the amended_return does not include a schedule c nor does it include any forms w-2 wage and tax statement with respect to the dollar_figure reported as salary income on page of the amended_return line for schedule c trade_or_business income is blank yet line of the return for other taxes includes dollar_figure for self-employment taxes and on line adjustments to income a deduction of dollar_figure is claimed for one-half of the self-employment taxes there is no statement attached to the amended_return explaining the reasons for the amended_return and how in particular the amended_return related to the schedule c activity reported on petitioner’s original return petitioner’s testimony was not clear as to why he filed the amended_return the income reported on the amended_return appears to be the same income reported on schedule c although admittedly the numbers do not match in the notice_of_deficiency respondent disallowed petitioner’s itemized_deductions on the basis that such deductions relating to the trade_or_business activity of practicing law were properly reportable on schedule c rather than schedule a petitioner was allowed the standard_deduction under sec_63 instead of the claimed itemized_deductions petitioner’s schedule c expenses as reported on the original return were adjusted to allow dollar_figure for meals dollar_figure for car and truck expenses calculated by multiplying the standard mileage rate by big_number miles dollar_figure for travel_expenses dollar_figure for memberships and dollar_figure for parking respondent disallowed all of petitioner’s charitable_contributions the remainder of petitioner’s schedule c expenses was not adjusted respondent determined dollar_figure for self-employment_tax and allowed a corresponding deduction for one-half of that tax respondent also determined the addition_to_tax under sec_6651 deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deductions claimed rule a 503_us_79 the taxpayer is required to identify each deduction available and show that all requirements have been met 292_us_435 it is also the taxpayer’s responsibility to maintain records sufficient to enable the commissioner to determine the correct_tax liability sec_6001 sec_1_6001-1 income_tax regs 116_tc_438 the taxpayer must substantiate both the amount and purpose of claimed deductions higbee v commissioner supra moreover the burden_of_proof as to the deficiency has not shifted to respondent in this case the first issue is whether petitioner is entitled to claim itemized_deductions on schedule a respondent contends that petitioner is not entitled to itemize deductions because his wife who filed separately for prior to petitioner did not elect to itemize sec_63 respondent is sustained on this point under sec_63 itemization is only allowed when the taxpayer makes an election petitioner did not elect to itemize on his original individual return moreover a change_of election shall not be allowed unless the taxpayer’s spouse elects consistent treatment and consents in writing to the assessment of any deficiency arising from the change sec_63 sec_1_63-1 income_tax regs petitioner’s spouse did not elect to itemize deductions on her original return nor did she consent to itemization when petitioner amended his return therefore petitioner is not entitled to claim deductions on schedule a sec_7491 in certain instances places the burden_of_proof on respondent with respect to examination of returns commencing after date the examination of petitioner’s return may have commenced after date however for the burden to be placed on the commissioner the taxpayer must comply with the substantiation and record keeping requirements of the internal_revenue_code sec_7491 and b in addition sec_7491 requires that the taxpayer cooperate with reasonable requests by the commissioner for witnesses information documents meetings and interviews sec_7491 on this record the burden has not shifted to respondent under sec_7491 116_tc_438 any expenses related to the law practice must be claimed on schedule c the court rejects petitioner’s argument that sec_63 violates his due process and equal protection rights generally where no fundamental rights are threatened statutory classifications are valid if they bear a rational relation to a legitimate governmental purpose 461_us_540 particularly in the area of family taxation congress must be accorded wide latitude 697_f2d_46 2d cir affg in part and revg in part 77_tc_867 here no fundamental right of petitioner’s is at stake and petitioner has not overcome the strong presumption of constitutionality afforded tax legislation regan v taxation with representation supra pincite 56_tc_1379 affd per curiam 459_f2d_1045 2d cir 69_tc_505 further perfect equality or absolute logical consistency between persons subject_to the internal_revenue_code is not a constitutional sine qua non 550_f2d_1239 7th cir per curiam statutory difference in tax_rates for married couples and single individuals does not violate fifth_amendment due process petitioner’s constitutional argument is rejected the second issue for decision is whether petitioner is entitled to deduct certain expenses relating to his law practice on schedule c in excess of amounts allowed by respondent the expenses claimed included car and truck expenses meals travel and miscellaneous expenses for memberships parking and charitable_contributions sec_162 allows a deduction for ordinary and necessary expenses that are paid_or_incurred during the taxable_year in carrying on a trade of business sec_162 308_us_488 in the case of travel_expenses and certain other expenses such as entertainment gifts and expenses relating to the use of listed properties including passenger automobiles under sec_280f sec_274 imposes stringent substantiation requirements to document particularly the nature and amount of such expenses for such expenses substantiation of the amounts claimed by adequate_records or by other_sufficient_evidence corroborating the claimed because petitioner is not entitled to itemize deductions on schedule a he cannot claim union dues as a miscellaneous itemized_deduction sec_67 butler v commissioner tcmemo_1998_355 moreover the dues were not ordinary and necessary business_expenses petitioner a lawyer joined a food and commercial workers' union for the personal benefit of obtaining insurance the record contains no evidence of any benefit to the law practice of petitioner's union membership cf 339_f2d_620 union dues paid_by a construction company on behalf of an officer were deductible where evidence showed there was a substantial benefit to the corporation expenses is required sec_274 sec_1_274-5t temporary income_tax regs fed reg date to meet the adequate_records requirements of sec_274 a taxpayer shall maintain an account book diary log statement of expense trip sheets or similar record and documentary_evidence which in combination are sufficient to establish each element of an expenditure sec_1_274-5t temporary income_tax regs fed reg date the elements to be proven with respect to each traveling expense are the amount time place and business_purpose of the travel sec_1_274-5t temporary income_tax regs fed reg date these substantiation requirements are designed to encourage taxpayers to maintain records together with documentary_evidence substantiating each element of the expense sought to be deducted sec l 274-5t c l temporary income_tax regs fed reg date petitioner offered little or no evidence at trial with respect to his parking car and truck travel meals and entertainment_expenses that would satisfy the requirements of sec_274 and the regulations cited similarly no evidence of petitioner’s membership expenses was submitted while petitioner claimed to have offered more evidence to respondent’s agent during the audit that evidence was conspicuously lacking at trial particularly considering petitioner’s profession as a litigator to the extent petitioner used his vehicle to commute to and from work such expenses are considered nondeductible personal living_expenses 45_tc_217 affd 368_f2d_1007 2d cir sec_1_262-1 income_tax regs the parking car and truck travel meals entertainment and membership fee expenses were not properly substantiated under the cited legal standards petitioner therefore is not entitled to deductions in excess of amounts allowed by respondent sec_170 allows a deduction for charitable_contributions during the taxable_year if verified as provided in the regulations sec_170 ordinarily charitable_contributions are deducted on schedule a pursuant to sec_170 however an individual may be entitled to claim a payment to a charitable_organization as a trade_or_business expense on schedule c if no part of such payment is allowable under sec_170 sec_1_162-15 income_tax regs generally such a payment may be claimed as a deduction on schedule c to the extent that it bears a direct relationship to the taxpayer’s trade_or_business and is made with a reasonable expectation of a financial return commensurate with the amount of the payment cf sec_1_162-15 income_tax regs although petitioner did not substantiate his claimed charitable_contributions with written documentation the court is satisfied that petitioner did make some payments qualifying as deductible trade_or_business_expenses during therefore under the court's discretionary authority pursuant to 39_f2d_540 2d cir the court allows petitioner a deduction of dollar_figure as a trade_or_business expense on schedule c for the year at issue the final issue is whether petitioner is liable for the addition_to_tax under sec_6651 for failure_to_file a timely return for the year sec_6651 provides for an addition_to_tax if a tax_return is not filed timely unless the taxpayer establishes that the failure_to_file did not result from willful neglect and that the failure_to_file was due to reasonable_cause willful neglect has been construed to mean a conscious intentional failure or reckless indifference 469_us_241 reasonable_cause_generally requires a taxpayer to demonstrate that he or she exercised ordinary business care or prudence sec_301 c proced admin regs it is undisputed that petitioner’s original tax_return was not filed until date the due_date for filing that return was date petitioner did not present satisfactory evidence of due to the court’s conclusion that petitioner is properly a schedule c filer with respect to his law practice he is liable for additional self-employment_tax respondent is sustained on this issue and the adjustment will be reflected in the rule computation reasonable_cause or the lack of willful neglect for the late filing of his return respondent is sustained on this issue decision will be entered under rule


t c memo united_states tax_court patricia g seaver petitioner v commissioner of internal revenue respondent docket no 3262-11l filed date patricia g seaver pro_se diane l worland for respondent memorandum opinion ruwe judge this matter is before the court on respondent’s motion for summary_judgment motion pursuant to rule respondent contends that no genuine issue exists as to any material fact and that the determination to sustain the proposed collection action of issuance of a notice_of_levy should be upheld in her petition and in her opposition to respondent’s motion petitioner advances only arguments that are frivolous groundless or otherwise without merit background at the time the petition was filed petitioner resided in indiana petitioner did not file income_tax returns for and on date respondent issued petitioner statutory notices of deficiency which determined deficiencies in her income_tax of dollar_figure and dollar_figure for the taxable years and respectively in addition respondent determined additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure for the taxable years and respectively and additions to tax pursuant to sec_6651 of dollar_figure and dollar_figure for the taxable years and respectively petitioner did not file a 1unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure and all section references are to the internal_revenue_code as amended petition with this court regarding the notices of deficiency for and as a result those deficiencies and additions to tax were assessed on date on date respondent issued petitioner a letter final notice_of_intent_to_levy and notice of your right to a hearing advising her that respondent intended to levy to collect her unpaid income_tax liabilities for taxable years and and that she could receive a hearing with respondent’s appeals_office on date petitioner timely mailed to respondent a form request for a collection_due_process or equivalent_hearing along with numerous attachments on date respondent’s appeals_office sent petitioner a letter that acknowledged receipt of her form the letter also advised petitioner that she was not in compliance with her income_tax filing_requirements she raised many arguments in her hearing request which are frivolous she was not entitled to a face-to-face collection_due_process_hearing unless she withdrew her frivolous arguments within days of respondent’s letter and that irs notice_2008_14 regarding specified frivolous position is available at www irs gov newsroom article the letter also scheduled a telephone collection_due_process cdp hearing conference for date and requested that petitioner prepare and forward to the settlement officer a completed form 433-a collection information statement for wage earners and self-employed individuals and signed income_tax returns for and the letter also advised petitioner that the tax_court is empowered to impose monetary sanctions of up to dollar_figure on a taxpayer who institutes or maintains an action before it primarily for delay or takes a position that is frivolous or groundless on date respondent’s settlement officer received a response from petitioner petitioner disagreed with respondent’s interpretation of her cdp hearing request requested a face-to-face hearing and made demand for the return of approximately dollar_figure which was allegedly collected from her by levy between october and date petitioner did not call respondent’s settlement officer on date for the telephone cdp hearing nor did petitioner call at any other date to conduct a telephone cdp hearing on date the settlement officer sent a letter to petitioner advising her that she did not call at the scheduled time and did not furnish the requested information the settlement officer’s letter also advised petitioner that levy payments were received from her during through and applied to tax_liabilities for tax years other than and which were the subject of the current cdp action the letter further advised petitioner that she could not contest her underlying income_tax liabilities for and because respondent had sent statutory notices of deficiency to her last_known_address giving her a prior opportunity to petition the tax_court the letter also reminded petitioner that sanctions of up to dollar_figure could be imposed against her for instituting or maintaining an action before it for delay or for taking a position that is frivolous or groundless petitioner did not submit to respondent’s settlement officer either a form 433-a or any proposed collection alternatives petitioner also failed to send a letter or any other document to the settlement officer withdrawing her frivolous positions respondent issued petitioner a notice_of_determination concerning collection action s under sec_6320 and or dated date sustaining the proposed levy to aid in the collection of her income_tax liabilities for taxable years and petitioner filed a petition with this court on date discussion summary_judgment is intended to expedite litigation and to avoid unnecessary and expensive trials 61_tc_861 a motion for summary_judgment is granted where the pleadings and other materials show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 116_tc_73 98_tc_518 aff’d 17_f3d_965 7th cir petitioner’s response to respondent’s motion fails to indicate that there is a genuine issue for trial consequently we conclude that there is no issue as to any material fact and that a decision may be rendered as a matter of law petitioner contends that if a person request a hearing in writing under subsection a b and states the grounds for the requested hearing such hearing shall be held by the internal revenue office of appeals and that shall is a work sic of mandatory intent however we have repeatedly held that there is no abuse_of_discretion in the irs’ refusal of a face-to-face hearing where a taxpayer has failed to present nonfrivolous arguments file past-due returns and submit financial statements as prerequisites to a collection alternative see zastrow v commissioner tcmemo_2010_215 rice v commissioner tcmemo_2009_169 summers v commissioner tcmemo_2006_219 respondent’s appeals_office informed petitioner that she was not entitled to a face-to-face cdp hearing unless she withdrew her frivolous arguments which she failed to do the remaining arguments made by petitioner in her petition and in her response to respondent’s motion are entirely frivolous and unfounded a position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir this court has ruled that arguments such as those petitioner asserts here are frivolous and wholly without merit see williams v commissioner tcmemo_1999_277 for example petitioner contends that the internal_revenue_service is falsely applying b substitute for return program in that this return filed by the irs was filed under the pretense of sec_6020 and that there can be no assessment for there can be no sfr filed without taxpayers consent petitioner continues by stating that petitioner has up to this point clearly and precisely shown that the irs did file a sfr against petitioner file entity it is a return filed by the irs not the petitioner and that the irs has no such authority to file a sfr against anyone petitioner also challenges the validity of all mailed documents due to lack of official signature and makes frivolous constitutional arguments including allegations that irs employees are conspiring to violate the thirteenth amendment which abolished slavery as we have said of similar arguments on previous occasions petitioner’s arguments are frivolous and devoid of any basis in the law we need not refute them with somber reasoning and copious citation of precedent to do so might suggest that they have some colorable merit see 737_f2d_1417 5th cir 136_tc_498 guthrie v commissioner tcmemo_2006_81 petitioner has raised no genuine issues in her pleadings regarding respondent’s determination to sustain the proposed collection action of her and income_tax liabilities or the related additions to tax consequently we sustain respondent’s determination to reflect the foregoing an appropriate order will be issued granting respondent’s motion and decision will be entered for respondent


o f f i c e o f t h e c h i e f c o u n s e l department of the treasury i n t e r n a l r e v e n u e s e r v i c e w a s h i n g t o n d c date number release date conex-144916-14 uil the honorable richard nugent member united_states house of representatives spring hill drive spring hill fl attention --------------------- dear congressman nugent i am responding to your inquiry dated date on behalf of your constituent ---------------------------- -------------- asked if certain medical insurance expenses her ex-husband pays for her benefit are alimony and therefore taxable to her gross_income includes amounts received as alimony or separate_maintenance payments sec_71 of the internal_revenue_code code alimony_or_separate_maintenance_payment is any payment in cash if the spouse or someone on the spouse’s behalf receives such payment under_a_divorce_or_separation_instrument the divorce_or_separation_instrument does not designate such payment as a payment that is not includible in gross_income under sec_71 of the code and not allowable as a deduction under sec_215 of the code in the case of an individual legally_separated from his spouse under a decree of divorce or of separate_maintenance the payee spouse and the payor spouse are not members of the same household at the time such payment is made no liability exists to make such payment for any period after the death of the payee spouse and no liability exists to make any payment in cash or property as a substitute for such payment after the death of the payee spouse sec_71 of the code conex-144916-14 a divorce_or_separation_instrument means in part a decree of divorce or separate_maintenance or a written instrument incident to such decree or a written_separation_agreement sec_71 of the code if a payment satisfies all of the factors listed in sec_71 of the code then it is alimony however if it fails to satisfy any one of the above factors it is not alimony see q and a-2 of sec_1_71-1t of the income_tax regulations if the divorce decree or other relevant document does not expressly state that the payment obligation terminates upon the death of the payee spouse the payment will qualify as alimony provided that the termination of the obligation would occur by operation of state law see notice_87_9 1987_1_cb_421 -------------- may also want to refer to publication divorced or separated individuals for additional information about the general rules for alimony i am enclosing a copy of this publication we understand that -------------- applied for a letter_ruling in ------ we advised in a letter dated ----------------------- to her that the user_fee she submitted was not sufficient and that she might qualify for a reduced user_fee the procedures to request a letter_ruling are in revproc_2014_1 2014_1_irb_1 date or its successor i am enclosing parts of the revenue_procedure which may help -------------- if she wants to request a letter_ruling the enclosure includes a schedule of user fees and the eligibility requirements for paying a reduced user_fee for a letter_ruling request appendix a of rev_proc i hope this information is helpful if you have any questions please contact me ----------- ----------- or ------------------ at ----- ------------- sincerely thomas d moffitt chief branch office of the associate chief_counsel income_tax and accounting enclosures