t c memo united_states tax_court frank h and marla c black petitioners v commissioner of internal revenue respondent docket no filed date frank h and marla c black pro_se j craig young for respondent memorandum findings_of_fact and opinion wells judge respondent determined the following deficiencies in income_tax and penalties for petitioners’ and taxable years frank h black year deficiency dollar_figure big_number penalty sec_6662 penalty sec_6663 n a n a dollar_figure dollar_figure marla c black year deficiency dollar_figure big_number penalty sec_6662 dollar_figure dollar_figure penalty sec_6663 n a n a after concessions the issues we must decide are whether petitioner frank black is liable for the fraud_penalty pursuant to section for taxable years and whether assessment of the deficiencies in income_tax and penalties for the taxable years and is barred by the statute_of_limitations whether petitioners failed to report income of dollar_figure and dollar_figure respectively on their and joint income_tax returns whether petitioners have substantiated the existence or amounts of any net operating losses for the taxable years and whether petitioners have substantiated that they are entitled to capital_loss_carryover deductions for the taxable years and of dollar_figure for each year whether petitioners failed to report interest and dividend income on their joint_return of dollar_figure and dollar_figure respectively and whether petitioner marla black is liable for a penalty pursuant to sec_6662 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 findings_of_fact some of the facts and certain exhibits have been stipulated the parties’ stipulations of fact are incorporated herein by reference and are found as facts petitioners resided in rock hill south carolina at the time the petition was filed petitioners are frank h black mr black and marla c black mrs black petitioners were married throughout all relevant periods mr black graduated from michigan state university in with a bachelor of science degree majoring in sociology and minoring in religion he was self-employed during and as a licensed stockbroker investment consultant and insurance agent on date mr black started his own business frank black d b a robert thomas securities which continued to operate throughout and on date mr black formed a north carolina c-corporation frank black inc respondent has not conducted an examination of frank black inc for the taxable_year mr black maintained his own books_and_records for and but failed to maintain complete and accurate books_and_records of income and expenses for either taxable_year petitioners filed timely joint federal_income_tax returns for taxable years and mr black prepared a draft of the joint_return and took it to a certified_public_accountant c p a for review the c p a made some minor corrections then used the data shown on the draft to create a computer-generated joint_return the joint_return was prepared by an accountant based upon computer printouts of income and expenses and oral information provided by mr black internal_revenue_service irs revenue_agent margaret mccarter agent mccarter was assigned to the examination of petitioners’ joint returns for the taxable years and agent mccarter’s initial contact with mr black occurred on date when she mailed him a letter advising him that his income_tax return was being examined and scheduling an appointment for date mr black refused to meet with agent mccarter as a result most of agent mccarter’s later contacts were with the representatives to whom mr black delegated powers of attorney on date agent mccarter referred mr black’s case to the irs criminal_investigation_division on date irs special_agent dennis o’dell agent o’dell and agent mccarter went to meet with mr black at his place of business in charlotte north carolina after arriving they introduced themselves to mr black and agent o’dell informed mr black why they were there as agent o’dell began reading him his rights mr black interrupted him said the interview was over and asked them to leave agent mccarter and later also agent o’dell were forced because of mr black’s refusal to provide requested bank and other relevant records to serve numerous irs summonses on mr black banks and other third parties in order to obtain the information necessary to determine petitioners’ income_tax liabilities for the taxable years and during date agent o’dell provided mr black’s representatives with a printout of canceled checks and asked them to have mr black classify the purpose of the checks as either business or personal over months later mr black still had not classified the checks on date agent o’dell wrote mr black’s representatives again requesting that mr black classify the checks and also asked that mr black complete and return the cash on hand statement enclosed with that letter on date mr black’s principal attorney robert mendenhall advised agent o’dell that mr black is being very obstinate and that he hoped that one of mr black’s other attorneys who was meeting with mr black can convince him that this is a serious matter on the basis of mr black’s lack of cooperation the lack of adequate books_and_records of income and expenses and evidence showing that petitioners had acquired assets and made substantial expenditures agent mccarter decided to use an indirect method of proof to reconstruct mr black’s income for and agent mccarter ultimately determined that the net_worth_method would be the most appropriate method to use agent mccarter prepared a revenue agent’s report setting forth the results of her examination of petitioners’ returns for the taxable years and on date respondent issued a statutory_notice_of_deficiency to petitioners for taxable years and in the notice_of_deficiency respondent determined petitioners’ taxable_income for and using the net_worth_method of proof respondent determined that petitioners made nondeductible expenditures during taxable years and of dollar_figure and dollar_figure respectively mr black applied for a dollar_figure life_insurance_policy mr black’s business wrote check no dated to first colony life_insurance co of dollar_figure for a dollar_figure life_insurance_policy on mr black respondent’s net_worth computations treat certain payments made by mr black’s businesses during and for medical_expenses as nondeductible personal expenditures made by petitioners mr black wrote a letter as manager of robert thomas securities to lincoln national insurance canceling a group medical insurance_policy and stating that his business was renewing a group medical insurance_policy with continental insurance special_agent o’dell stated in his report that mr black paid a total of dollar_figure in health insurance premiums during the period january through date before terminating the policy during mr black paid the c p a firm of martinson newton co c p a s a fee of dollar_figure for preparing petitioners’ joint_return and for preparing amended joint federal and state_income_tax returns for during mr black paid bob west a fee of dollar_figure to form mr black’s north carolina c-corporation frank black inc the notice_of_deficiency treated both the dollar_figure income_tax return preparation fee and the dollar_figure incorporation fee as nondeductible expenditures_for purposes of respondent’s net_worth computation during and petitioners made credit card payments totaling dollar_figure and dollar_figure respectively all of which payments were treated as nondeductible in the notice_of_deficiency petitioners claimed schedule c profit or loss from business deductions on their joint_return for payments of dollar_figure to each of their children dominique born on date and jonathan born on date petitioners claimed schedule c deductions on their joint_return for payments of dollar_figure made to each of their children dominique and jonathan the notice_of_deficiency treated the full amounts of the payments by mr black to dominique and jonathan during and as nondeductible for purposes of respondent’s net_worth computation mr black issued forms 1099-misc reporting the payments made to dominique and jonathan in and federal and state_income_tax returns were filed for dominique and jonathan for the taxable years and reporting the amounts shown on forms 1099-misc on date mr black met with c p a walter martinson to discuss various aspects of mr black’s business one of the items discussed was the possibility of mr black’s paying his children c p a martinson advised putting money in an account for them in their names during the taxable_year mr black was a general agent for clark capital management group clark capital and received commissions from clark capital of dollar_figure petitioners did not report any of the clark capital commission income on their joint_return on date petitioners submitted a consumer_loan application to home federal home federal application on the home federal application they listed under assets a bradford money market account valued at dollar_figure on the personal statement attached to the home federal application petitioners stated that they possessed cash on hand and in banks totaling dollar_figure irs revenue_agent robin helton agent helton was assigned to examine petitioners’ joint returns for the taxable years and petitioners’ and income_tax returns reported taxable_income of dollar_figure dollar_figure and dollar_figure respectively petitioners later agreed to deficiencies for taxable years and on date agent helton conducted an initial interview with mr black in connection with her examination of petitioners for the years and during that interview she questioned mr black about what was the most cash you had on hand during the tax_year to which mr black responded that petitioners kept no great amounts of cash on hand at no time during agent helton’s investigation did petitioners ever claim to have had large amounts of cash on hand on date petitioners received a check of dollar_figure from the sale of a residence owned by mrs black which they deposited into one of their bank accounts during on date petitioners had cash on hand of approximately dollar_figure and did not possess cash on hand in any significantly greater amount petitioners were not mistrustful of banks and they maintained several bank accounts and engaged in large numbers of banking transactions during both and petitioners’ use of bank accounts included the unusual practice of depositing and writing numerous checks for small amounts during and petitioners deposited checks ranging from dollar_figure to dollar_figure and also wrote checks ranging from dollar_figure to dollar_figure mr black knew that bank_deposits are insured by the federal deposit insurance corporation and that he could have earned considerable sums of interest_income with no risk if he had deposited the alleged cash hoard into a bank account petitioners borrowed money and paid interest on loans during not only and but also during prior years when they allegedly were accumulating their cash hoard petitioners claimed and respondent allowed schedule a itemized_deductions mortgage interest deductions for each of the taxable years through mr black borrowed dollar_figure from his office manager jeanette roberts and repaid her during the same year that the loan was made 2the parties stipulated these facts petitioners were unable to estimate in dollars the amounts of the alleged cash hoard they contend were expended during either or petitioners failed to provide any specific details ie dates amounts or items purchased concerning the use of the alleged cash hoard during either or for either personal or business purposes all of the nondeductible expenditures agent mccarter took into account in her net_worth computation were paid either by check or by credit card charges later paid_by check the cash deposits into petitioners’ bank accounts totaled dollar_figure in and no cash deposits were made into petitioners’ bank accounts during petitioners claimed net_operating_loss deductions of dollar_figure and dollar_figure on their and joint returns respectively petitioners claimed dollar_figure deductions for short-term_capital_losses on their and joint returns in the notice_of_deficiency respondent determined that petitioners omitted from their joint_return interest_income of dollar_figure and dividend income of dollar_figure that they received from american funds service company agent mccarter based her adjustments to petitioners’ interest_income upon forms issued in mr black’s name and social_security_number none of the forms were issued in the name or employer_identification_number of frank black inc frank black inc did not have any bank or other accounts during frank black inc did not conduct any business during all of petitioners’ existing accounts remained in their individual names all interest_paid on petitioners’ accounts was earned by petitioners individually during the examination conducted for the taxable years through mr black refused to discuss the large deductions claimed for alleged contributions to the universal life church ulc in addition he refused to provide any substantiation in order to verify the secretarial expense and the casualty_loss claimed on the returns and stated that the agent had no authority to ask any personal questions when questioned by agent helton during the initial interview for the examination of petitioners’ through tax years mr black generally was unresponsive and evasive during agent helton’s initial interview mr black told her that petitioners had not acquired any assets during the years through even though they had acquired assets including several automobiles on their joint returns for the taxable years and petitioners deducted dollar_figure dollar_figure and dollar_figure respectively for their alleged contributions to new faith baptist church nfbc respondent disallowed all of the nfbc deductions and petitioners subsequently conceded pursuant to settlement that no nfbc deductions were allowable during the examination mr black gave agent helton a statement which he stated should be sufficient to verify the deductions claimed for contributions to nfbc the statement provided by mr black included both the name of the alleged church listed as new faith baptist inc and the amounts of the alleged charitable_contributions petitioners never provided any evidence to agent helton to show that any church named nfbc actually existed agent helton tried without success to verify the existence of nfbc through other means agent helton checked the telephone listing for rock hill south carolina and also checked the irs’s official listing of approved sec_501 organizations but found no listings for the alleged church because the statement provided by mr black included inc in the alleged church’s name agent helton checked with the south carolina secretary of state scsos agent helton learned from the scsos that a corporation named new faith baptist inc was on file with the scsos and that its articles of incorporation listed petitioners’ rock hill south carolina address as its corporate address and listed mr black as a corporate officer during a date telephone conversation mr black told agent helton that nfbc had moved to hickory north carolina petitioners never provided agent helton with any canceled checks or any other credible_evidence to show that they had made any contributions to nfbc or any church during or during date mrs black purchased a new magic-chef electric range at appliance and furniture world in charlotte north carolina the range was installed in petitioners’ kitchen was used to cook meals for petitioners’ family and their guests and it was not used for any business purposes mr black deducted the dollar_figure paid for the electric range as supplies on the schedule c attached to the joint_return during february petitioners paid dollar_figure to steve starnes d b a steve’s upholstery for replacing the foam and re-upholstering a sectional sofa the sofa was kept in the den in petitioners’ home which was used on a regular basis as a family room by petitioners and their children and was not devoted exclusively to business purposes mr black deducted the dollar_figure paid for the sofa re-upholstery as supplies on the schedule c attached to the joint_return during date mrs black purchased a 75-gallon salt water aquarium from kent drum mr drum the owner of k m pet center the aquarium and related equipment were delivered to petitioners’ house on the evening of date and left unassembled in their den the next day mr drum assembled the aquarium in petitioners’ den the aquarium was set up the day before the sixth birthday of petitioners’ son jonathan the aquarium remained in petitioners’ den until at least date mr black deducted the dollar_figure paid for the aquarium as supplies on the schedule c attached to the joint_return during daniel howachyn performed alterations on an iron gate and also fabricated an arched door made of treated wood both the gate and door were located in petitioners’ residential courtyard mrs black paid for the work on the gate with two checks of dollar_figure and dollar_figure mr black deducted both checks to mr howachyn as supplies on the schedule c attached to the joint_return during both and mr black wrote checks to petitioners’ daughter anita black who was attending college at the time a summary of these checks is as follows year amount stated purpose dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure supplies supplies small overhead projector - supplies brother processor - supplies typewriter - supplies pay pay pay mr black deducted the foregoing eight checks based on their stated purpose on the schedule c attached to the and joint returns anita black never purchased equipment for or sold any equipment to mr black although anita black occasionally did some work for her father’s business she never received a paycheck anita black did have a brother processor and typewriter and used them for schoolwork mr black did not issue a form_1099 or form_w-2 wage and tax statement for the dollar_figure allegedly paid to anita black as wages during for and petitioners claimed schedule c deductions for travel_expenses of dollar_figure and dollar_figure respectively and claimed schedule c deductions for meals and entertainment of dollar_figure and dollar_figure respectively for many years mr black has placed title to his property solely in his wife’s name because of his concerns that his property could be reached by potential creditors mrs black holds a bachelor of visual arts degree in sculpture mrs black did not personally sign the and joint returns mr black signed mrs black’s name to the and joint returns mrs black did not review and never saw the or joint returns before they were filed she also never asked mr black whether he had timely filed those returns and did not know until well after the fact that those returns had been filed opinion period of limitations and fraud we address the issues of fraud and the period of limitations prior to the other issues in the instant case because absent fraud the period of limitations prevents respondent’s assessment of the taxable years in issue sec_6501 see eg langworthy v commissioner tcmemo_1998_218 the notice_of_deficiency was issued on date after the expiration of the general 3-year period of limitations on assessments for both petitioners’ and taxable years sec_6501 however in the case of the filing of a false_or_fraudulent_return with intent to evade tax the tax may be assessed at any time sec_6501 if the return is fraudulent in any respect it deprives the taxpayer of the bar of the statute_of_limitations for that year 288_f2d_517 2d cir affg tcmemo_1960_32 thus where fraud is alleged and proven respondent is free to determine a deficiency with respect to all items for the particular taxable_year without regard to the period of limitations 102_tc_380 moreover if a joint_return was filed proof of the fraudulent intent as to one spouse lifts the bar of the statute_of_limitations as to both spouses 54_tc_1011 the commissioner has the burden of proving fraud by clear_and_convincing evidence sec_7454 rule b respondent’s burden_of_proof under sec_6501 is the same as that imposed by sec_6663 see 779_f2d_849 2d cir affg in part and remanding in part mandina v commissioner tcmemo_1982_34 a proof of an underpayment to satisfy the commissioner’s burden the commissioner must show an underpayment exists and the taxpayer intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes 94_tc_654 the commissioner must meet that burden through affirmative evidence because fraud is never imputed or presumed 92_tc_661 if the commissioner establishes that any portion of an underpayment in a particular year is attributable to fraud the entire underpayment is treated as attributable to fraud except with respect to any portion of the underpayment which the taxpayer establishes by a preponderance_of_the_evidence is not attributable to fraud sec_6663 respondent used the net_worth_method to establish petitioners’ income and the fact of an underpayment under the net_worth_method taxable_income is computed by reference to the change in the taxpayer’s net worth3 during a year increased for nondeductible expenses such as living_expenses and decreased for items attributable to nontaxable sources such as gifts and loans the resulting figure may be considered to represent taxable_income provided the commissioner establishes the taxpayer’s opening net_worth with reasonable certainty and the commissioner either shows a likely source of unreported income or negates possible nontaxable sources 355_us_595 348_us_121 82_tc_413 affd without published opinion 772_f2d_910 9th cir deductions are a matter of legislative grace and petitioners must prove they are entitled to the deductions rule a 292_us_435 respondent has established petitioners’ opening net_worth with reasonable accuracy petitioners however argue that mr black maintained a cash hoard and that respondent’s determination of petitioners’ opening net_worth does not take into consideration petitioners’ cash hoard according to mr black as of date petitioners had accumulated a cash hoard of between dollar_figure and dollar_figure consisting of bundles of dollar_figure 3assets are generally listed at their cost rather than at their current market_value 420_f2d_283 8th cir affg tcmemo_1968_12 bills and kept this cash hoard inside a suitcase in an unlocked closet in their residence we decide whether a witness is credible on the basis of objective facts the reasonableness of the testimony and the demeanor of the witness 140_us_417 338_f2d_602 9th cir affg 41_tc_593 dozier v commissioner tcmemo_2000_255 having had the opportunity to observe petitioners and mr black’s employee mr plexico at trial we find their testimony regarding the existence of a cash hoard to lack credibility petitioners had several bank and investment accounts and made regular use of them we find it implausible that as a stockbroker and investment adviser mr black had accumulated dollar_figure in cash and that he kept that cash in a closet at his house respondent repeatedly requested that petitioners provide information about petitioners’ cash on hand but they refused to provide such information petitioners and their representatives were aware that respondent was using the net_worth_method of proof to compute petitioners’ taxable_income for the taxable years and however at no time during agent mccarter’s civil examination or agent o’dell’s criminal investigation did petitioners or any of their representatives claim that the net_worth adjustments could be explained by the use of a large cash hoard petitioners did not raise any cash hoard defense in either their petition or their reply petitioners first raised their cash hoard defense only after this case initially was set for trial in winston-salem north carolina on date petitioners have failed to identify any source of funds for the cash hoard other than supposed savings over a number of years on the date consumer_loan application to home federal petitioners stated that they possessed cash on hand and in banks totaling dollar_figure during agent helton’s examination of petitioners through taxable years petitioners failed to identify any large quantities of cash on hand at trial mr black testified that he had lied to agent helton furthermore all of the expenditures in respondent’s net_worth calculations are by check or credit cards eventually paid_by check also there is no evidence of large cash deposits into petitioners’ bank accounts thus even if petitioners had a cash hoard it would not affect the net_worth calculations as there is no evidence that any of the expenditures were paid_by cash either directly or through deposit and payment by check respondent has negated all nontaxable sources of income alleged by petitioners respondent has shown that petitioners did not receive any gifts or inheritances most importantly respondent has negated petitioners’ cash hoard argument during and mr black paid medical insurance premiums of dollar_figure and dollar_figure respectively respondent’s net_worth calculation treats such amounts as nondeductible expenditures however respondent allowed deductions for percent of the premiums_paid as self-employment health insurance see sec_162 under sec_213 personal medical and dental expenses are deductible only to the extent they exceed percent of adjusted_gross_income agi accordingly petitioners are not entitled to deduct the remaining percent of the medical insurance premiums_paid as personal medical_expenses as they do not exceed percent of petitioners’ adjusted_gross_income sec_213 sec_162 petitioners have not proven that any deduction above the percent allowed is appropriate petitioners appear to argue that some portion of the medical insurance premiums should be deductible under sec_162 as ordinary and necessary business_expenses the parties have stipulated that mr black had a health insurance_policy covering himself and his family as well as several employees however the record is silent as to what portion of the premiums_paid was for petitioners’ family and what portion for the employees thus we are unable to estimate an amount deductible under sec_162 see 39_f2d_540 2d cir 85_tc_731 petitioners challenge several other aspects of respondent’s net_worth computation many of petitioners’ arguments confuse benefits provided by an employer to an employee with those provided by a self-employed_individual to himself additionally petitioners attempt to attribute some payments to frank black inc however frank black inc did not have any bank or other accounts in nor did it transact any business or have any employees b proof that the underpayment was due to fraud sec_6663 imposes a penalty equal to percent of the portion of any underpayment which is attributable to fraud sec_6663 the penalty in the case of fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from a taxpayer’s fraud 303_us_391 fraud is intentional wrongdoing on the part of the taxpayer with the specific purpose to evade a tax believed to be owing 61_tc_249 affd 519_f2d_1121 5th cir the existence of fraud is a question of fact to be resolved from the entire record 67_tc_181 affd without published opinion 578_f2d_1383 8th cir however fraud need not be established by direct evidence which is rarely available but may be proved by surveying the taxpayer’s entire course of conduct and drawing reasonable inferences therefrom 317_us_492 courts have relied on a number of indicia or badges_of_fraud in deciding whether to sustain the commissioner’s determinations with respect to the additions to tax for fraud although no single factor may be necessarily sufficient to establish fraud the existence of several indicia may be persuasive circumstantial evidence of fraud 732_f2d_1459 6th cir affg per curiam tcmemo_1982_603 55_tc_85 circumstantial evidence that may give rise to a finding of fraudulent intent includes understatement of income inadequate records failure_to_file tax returns concealment of assets failure to cooperate with tax authorities filing false documents failure to make estimated_tax payments engaging in illegal activity attempting to conceal illegal activity dealing in cash implausible or inconsistent explanations of behavior an intent to mislead which may be inferred from a pattern of conduct and lack of credibility of the taxpayer’s testimony spies v united_states supra pincite the taxpayer's background and the context of the events in question may be considered as circumstantial evidence of fraud spies v united_states supra pincite 796_f2d_303 9th cir affg tcmemo_1984_601 99_tc_202 the instant case involves numerous badges_of_fraud mr black grossly understated his income the and joint returns reported negative taxable_income of dollar_figure and dollar_figure respectively even after respondent’s minor concessions at trial petitioners failed to report substantial amounts of income including commissions from clark capital of dollar_figure petitioners argue that their omission was an oversight on their part because mr black did not receive a form_1099 from clark capital however mr black testified at trial that he maintained records of his business gross_receipts that he knew he had received the clark capital commissions and that he had recorded the commission checks in his records mr black failed to provide such records to his return preparer petitioners’ standard of living was inconsistent with the negative income reported on the and joint returns petitioners hired a housekeeper and paid for their daughter’s college expenses during the years in issue petitioners reduced their home mortgage balance from dollar_figure to zero and reduced their home equity loan balance from dollar_figure to dollar_figure in they also spent a total of dollar_figure for improvements to their residence and landscaping mr black has a history of refusing to cooperate with respondent’s agents during the examination of his taxable years through mr black refused to discuss the large deductions claimed for contributions to the universal life church during agent helton’s investigation of taxable years through mr black generally was unresponsive and evasive at trial while cross-examining agent helton mr black described his own behavior during that audit as a little evasive finally during the examination of his taxable years and mr black refused to meet first with agent mccarter and then with both agents mccarter and o’dell consequently all of agent mccarter’s and agent o’dell’s contacts with mr black were made through his representatives although the agents attempted to get mr black to cooperate he provided only limited records mr black failed to provide records for the bank accounts that were in his name mr black refused respondent’s repeated requests to classify his checks as either business or personal and to provide information concerning petitioners’ cash on hand because mr black refused to provide relevant records agents mccarter and o’dell were forced to serve irs summonses upon mr black banks and other third parties mr black’s failure to cooperate caused frustration to his own representatives during november agent o’dell provided mr black’s representatives with a printout of canceled checks and asked them to have mr black classify the purpose of the checks as either business or personal more than months later mr black still had not classified the checks on date agent o’dell wrote mr black’s representatives again requesting that mr black classify the checks and also asked that mr black complete and return the cash on hand statement enclosed with that letter on date mr black’s principal attorney robert mendenhall advised agent o’dell that mr black is being very obstinate and that he hoped that one of mr black’s other attorneys who was meeting with mr black that afternoon can convince him that this is a serious matter petitioners also have a history of claiming inappropriate charitable deductions first to ulc and to nfbc on their joint returns for taxable years and petitioners claimed deductions for charitable_contributions to the universal life church of dollar_figure dollar_figure and dollar_figure respectively after examination respondent disallowed these deductions in full petitioners ultimately agreed to the disallowance of all claimed ulc deductions likewise petitioners claimed charitable deductions on their and joint tax returns of dollar_figure dollar_figure and dollar_figure respectively for contributions to nfbc after examination respondent disallowed the nfbc deductions in full petitioners ultimately agreed to the disallowance of all claimed nfbc deductions during the examination mr black gave agent helton a statement which he stated should be sufficient to verify the deductions claimed for contributions to nfbc the statement provided by mr black included both the name of the alleged church listed as new faith baptist inc and the amounts of the alleged charitable_contributions petitioners never provided any evidence to agent helton to show that nfbc was a church agent helton tried without success to verify the existence of nfbc through other means agent helton checked the telephone listing for rock hill s c and also checked the irs’s official listing of approved sec_501 organizations but found no listings for the alleged church because the statement provided by mr black included inc in the alleged church’s name agent helton checked with the scsos agent helton learned from the scsos that a corporation named new faith baptist inc was on file and that its articles of incorporation listed petitioners’ rock hill south carolina address as its corporate address and listed mr black as a corporate officer at trial mrs black testified that she first became aware of nfbc when someone called me on the phone and asked to speak to somebody from the church mrs black also testified that after the call she asked mr black about nfbc and he said it used to be in the house it used to be a church that he and his friends had formed and it was not valid after mr black’s objection mrs black altered her testimony saying what i was saying is it was not there in the home anymore petitioners never provided agent helton with any canceled checks or any other credible_evidence to show that they had made any contributions to nfbc or any church during or petitioners claimed a number of inappropriate deductions for personal expenditures_for the years in issue including but not limited to a new range re-covering a sofa an aquarium and the work performed by daniel howachyn petitioners argue that such deductions were for their home_office or mrs black’s home-based business however at trial they testified repeatedly that the office was in fact their den and was not used exclusively for business purposes sec_280a provides as a general_rule that no deduction otherwise allowable to an individual shall be allowed with respect to the use of a dwelling_unit which is used by the taxpayer during the taxable_year as a residence as relevant herein sec_280a provides that the general_rule of sec_280a is not applicable to any item to the extent it is allocable to a portion of the dwelling_unit which is exclusively used on a regular basis as the principal_place_of_business for any trade_or_business of the taxpayer or as a place of business which is used by patients clients or customers in meeting or dealing with the taxpayer in the normal course of his trade_or_business_expenses deducted as a business use of home must be deductible under sec_162 or some other code section see sec_280a petitioners claimed schedule c deductions for eight checks written to their daughter anita we conclude largely on the basis of agent o’dell’s interview with anita on date that such checks to anita were gifts of money and supplies for her college work the checks to anita were not properly deductible as business_expenses petitioners also claimed schedule c deductions on their joint and returns for payments to their two young children dominique and jonathan petitioners contend that dominique and jonathan were mr black’s employees and the payments to them were properly deducted as salary the record establishes that dominique and jonathan did spend some time in mr black’s office in charlotte likewise ms roberts an employee of mr black told agent o’dell that the children sometimes helped her stuff and stamp envelopes and perform other chores like emptying the trash however we are not persuaded that amounts paid to petitioners’ children were compensation_for services rendered petitioners failed to present any records to substantiate that he employed dominique and jonathan throughout and and admitted that they kept no written records of the hours they worked when asked at trial to estimate the total hours each child worked mr black answered let’s call it big_number hours per year according to his estimate mr black’s children who were and years old in worked the same hours as one full-time adult mr black did not pay the children for services rendered his actual employee ms roberts received a set annual salary plus a bonus and was paid_by check twice per month mr black properly withheld social_security and income taxes from her pay and issued a form_w-2 reporting her wages no forms w-4 employees withholding allowance certificate were ever executed for dominique and jonathan no social_security or income taxes were withheld their pay was reported on a form_1099 and the salary was paid in a lump sum to each we conclude that respondent properly treated the payments to dominique and jonathan as nondeductible personal expenditures and indicia of fraud petitioner overstated deductions for travel meals and entertainment_expenses and failed to provide credible_evidence to support such deductions at trial during the examination of petitioners’ taxable years and petitioners’ representative provided agent mccarter with a travel log prepared by mr black which purported to show mr black’s business travel for taxable years and agent mccarter returned the log to petitioners’ representative because she could not read mr black’s handwriting and requested a legible copy of the log or other documentation to support mr black’s deductions neither mr black nor his representatives ever provided a new travel log or any other evidence to support his deductions for business travel meals or entertainment agent mccarter concluded that on the basis of the amounts of claimed travel deductions and mr black’s use of the standard mileage rate mr black had to have driven big_number miles in and big_number miles in which averages miles per day in and miles per day in at an average rate of miles per hour mr black would have had to drive between and hours per day days per week not including time spent stopped for gas or meals or meeting with clients at trial both petitioners testified that mr black loved to drive petitioners argue that mr black’s business was just starting up and client contact was very important however petitioners failed to identify even one instance of any business- related travel for either year in issue by destination or name of client additionally the original travel log is now missing and is not part of the record mr black may have traveled for business purposes however we are convinced that the deductions for travel claimed on the and joint returns are grossly overstated we find that such overstatements are indicative of mr black’s fraudulent intent to avoid taxes petitioner is an intelligent and well-educated businessman we find that he had a basic comprehension of federal tax matters and he understood that individuals must report their gross_income and can only claim deductions for amounts actually paid in the ordinary and necessary course of business and not for personal expenditures 4big_number big_number dollar_figure mr black attempted to conceal assets by placing title to the assets in his wife’s name at trial mr black testified that he placed title to property solely in his wife’s name so that his creditors would not be able to reach it finally petitioners provided implausible or inconsistent explanations to explain the discrepancy in the net_worth calculations namely that they had a cash hoard of dollar_figure as discussed above we do not find any of the testimony presented regarding the cash hoard to be credible c conclusion we conclude that the record shows by clear_and_convincing evidence that petitioners understated their income and overstated deductions and that there are sufficient badges_of_fraud to show that understated income and overstated deductions are due to mr black’s fraudulent intent petitioners have failed to prove any portion of the underpayment is not attributable to fraud accordingly we hold that sec_6501 does not bar the assessment and collection_of_taxes for and and that mr black is liable for the fraud_penalty pursuant to sec_6663 amount of the deficiency although petitioners conceded some unreported gross_income petitioners did not concede the deficiencies determined by respondent petitioners contend they are entitled to a number of adjustments to gross_income not allowed by respondent generally the commissioner’s determinations are presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 some of petitioners’ contentions are addressed above in the discussion of fraud and do not bear repeating here except that we conclude that petitioners have failed to prove respondent’s adjustments are not correct accordingly we uphold respondent’s determination with respect to those adjustments ie the schedule c adjustments the payments to petitioners’ children and the travel adjustments the remaining contested items are addressed below in the notice_of_deficiency respondent disallowed a net_operating_loss_deduction for petitioners’ taxable years and sec_172 allows a net_operating_loss_deduction for the aggregate of net_operating_loss carrybacks and carryovers to the taxable_year the term net_operating_loss nol is defined in sec_172 to mean the excess of deductions allowed by chapter one over gross_income sec_172 generally provides that the period for an nol_carryback i sec_3 years and that the period for an nol_carryover i sec_15 years however a taxpayer may elect to relinquish the carryback period with respect to an nol for any taxable_year thereby using the loss to offset income only in future years sec_172 respondent does not dispute that petitioners elected to relinquish the carryback periods for and and apply the nols against income for and respondent however argues that petitioners have failed to show that they incurred any nol in either or deductions are a matter of legislative grace and petitioners must prove they are entitled to the deductions rule a 292_us_435 petitioners were audited for the taxable years and and later resolved their tax_court cases6 for those years by agreeing to deficiencies in income_tax and related additions to tax for all years additionally the settlement establishes that petitioners did not incur any nols in any of those years and that no nol_carryover deduction from any pre- taxable_year existed to be carried forward thus petitioners’ entitlement to any nol_carryover deduction for taxable years and depends solely on whether they have substantiated both the existence and amount of any nol for or petitioners argue that their return shows an nol of dollar_figure and that by not examining petitioners’ taxable_year respondent has conceded the nol and cannot disallow it now petitioners’ argument is without merit respondent’s failure to 6docket nos and audit or disallow a loss claimed on a return for one year does not estop respondent from disallowing an nol_carryover of that loss to a future year rollert residuary_trust v commissioner 80_tc_619 affd on another issue 752_f2d_1128 6th cir petitioners have failed to substantiate the existence or amount of any nol_carryover deduction for the taxable years and under sec_1211 noncorporate taxpayers are allowed capital losses only to the extent of capital_gains plus dollar_figure sec_1212 allows noncorporate taxpayers to carry forward capital losses to subsequent taxable years but it does not allow such taxpayers to carry back capital losses to prior taxable years in the notice_of_deficiency respondent disallowed capital_loss deductions for petitioners’ taxable years and of dollar_figure and dollar_figure respectively petitioners advance essentially the same estoppel argument as with the nol_carryover petitioners however claim the capital losses carried over to and arose in taxable years through and that deductions of those losses were subsequently allowed in the audited years through petitioners argue that by allowing the loss in the audited years respondent has conceded the full capital_loss_carryover amount shown on the returns for and each taxable_year stands alone and the commissioner may challenge in a succeeding year what was condoned or agreed to in a former year auto club of mich v commissioner 353_us_180 a settlement agreement is binding only with respect to the years specified by the agreement 39_f3d_402 2d cir affg tcmemo_1993_480 petitioners have failed to substantiate that they are entitled to claim any capital_loss deduction for the taxable_year or a capital_loss in excess of dollar_figure for taxable_year in the notice_of_deficiency respondent determined that petitioners failed to report interest and dividend income on their joint_return of dollar_figure and dollar_figure respectively gross_income includes all interest and dividends received by a taxpayer during the taxable_year sec_61 petitioners argue that they reported dollar_figure of interest on the income_tax return filed by frank black inc however all interest at issue appears on forms issued to mr black in his individual name and social_security_number at trial mr black indicated that he had assigned that income to the corporation the assignment_of_income_doctrine prevents 7respondent allowed a capital_loss deduction of dollar_figure for taxable_year 8we note that frank black inc had no checking or other accounts in and does not appear to have carried on any operations petitioners from avoiding taxation on their interest_income by assigning that income to another 281_us_111 petitioners failed to present any evidence regarding the dollar_figure of dividend income accordingly we conclude that petitioners failed to report interest and dividend income on their joint_return of dollar_figure and dollar_figure respectively sec_6662 penalty pursuant to sec_6662 a taxpayer may be liable for a penalty of percent of the portion of an underpayment_of_tax attributable to a substantial_understatement_of_income_tax or due to negligence or disregard of rules or regulations sec_6662 the term understatement means the excess of the amount of tax required to be shown on a return over the amount of tax imposed which is shown on the return reduced by any rebate within the meaning of sec_6211 sec_6662 generally an understatement is a substantial_understatement when the understatement exceeds the greater of dollar_figure or percent of the amount of tax required to be shown on the return sec_6662 the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code sec_6662 mrs black is not liable for the accuracy-related_penalty imposed by sec_6662 because the underpayments of tax for taxable years and are due to fraud by mr black sec_6662 zaban v commissioner tcmemo_1997_479 aflalo v commissioner tcmemo_1994_596 minter v commissioner tcmemo_1991_448 we have considered all of petitioners’ contentions and to the extent they are not addressed herein they are irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court estate of james t callaway deceased elizabeth n callaway executrix and elizabeth n callaway petitioners v commissioner of internal revenue respondent docket no filed date frank agostino for petitioners susan g lewis and guy a bracuti for respondent memorandum opinion panuthos chief special_trial_judge this case is before the court on petitioners' motion for summary_judgment in addition the court sua sponte raised certain jurisdictional issues concerning the validity of the notices of deficiency at issue section references are to the internal_revenue_code as continued the primary issue for consideration is whether the affected items notices of deficiency are valid in this connection we must consider whether the partnership items of each petitioner converted to nonpartnership_items if the partnership items of either petitioner remain as partnership items we must further decide whether the period of limitations has expired for issuance of that affected items notice_of_deficiency background petitioners are the estate of james t callaway and elizabeth n callaway mrs callaway james t callaway's surviving_spouse james t callaway decedent died on date mrs callaway is the duly appointed executrix of decedent's_estate during the taxable years and decedent was a limited_partner in a partnership known as mountain view mall associates mountain view or the partnership decedent and mrs callaway filed joint federal_income_tax returns reporting decedent's distributive_share of losses reported on mountain view's partnership returns for the taxable years and on date respondent mailed to decedent a notice of the beginning of an administrative_proceeding nbap continued amended rule references are to the tax_court rules_of_practice and procedure respecting the partnership's taxable_year respondent has been unable to provide the court with copies of the nbap's purportedly mailed to decedent on the same date with respect to the partnership's and taxable years on date mrs callaway forwarded several letters to respondent including a request_for_prompt_assessment of income_tax submitted on behalf of decedent's_estate for the taxable years through see sec_6501 in addition mrs callaway remitted three checks to respondent in the amounts of dollar_figure dollar_figure and dollar_figure designated as deposits in the nature of a cash bond respecting petitioners' tax_liabilities for and respectively at the same time mrs callaway filed a form 872-t with respondent covering the taxable years through along with a letter dated date stating please accept this form as a statement disclaiming and denying the tax matters partners' settlement authority a statement denying the tax matters partner's authority to extend any statutes of limitation and an election to have any items which would be classified as partnership items classified as non-partnership items subject_to the deficiency procedures of sec_6213 there is no indication that respondent replied to mrs callaway's letters however the record indicates that respondent initially concluded that mrs callaway's request_for_prompt_assessment of income_tax filed on behalf of decedent's_estate was invalid on date respondent issued notices of final_partnership_administrative_adjustment fpaa to the tax_matters_partner tmp for mountain view determining adjustments to the partnership's tax returns for and on the same date respondent mailed to petitioners copies of the above- described fpaa's on or about date a mountain view partner other than the tmp filed a petition_for_readjustment with the u s court of federal claims contesting the fpaa's described above in august and date respondent entered what respondent terms precautionary assessments against petitioners for additional taxes in the amounts of dollar_figure dollar_figure and dollar_figure for and respectively reflecting the disallowance of decedent's distributive_share of mountain view's partnership items for those years at the same time respondent posted to petitioners' accounts the amounts that mrs callaway remitted to respondent on date on date the u s court of federal claims dismissed the partnership level action pursuant to sec_6226 based upon a stipulation for dismissal in which the partnership conceded the adjustments set forth in the fpaa's respondent entered these assessments in an effort to protect against the expiration of the period of limitations in the event that mrs callaway's request_for_prompt_assessment filed on behalf of the decedent's_estate was deemed valid on date presumably after abating the above- described assessments entered in august and date respondent entered identical assessments against petitioners reflecting computational adjustments to account for the disallowance of decedent's distributive_share of mountain view's partnership items for the taxable years and on date respondent issued notices of deficiency to petitioners determining various additions to tax including delinquent filing of returns negligence and valuation overstatements for the taxable years and the additions to tax are based upon adjustments to petitioners' tax_liability arising from the disallowance of decedent's distributive_share of mountain view partnership items petitioners invoked the court's jurisdiction by filing a timely petition for redetermination after filing their petition petitioners filed a motion to restrain collection asserting that respondent had failed to timely assess and was improperly attempting to collect the underlying tax deficiencies attributable to the disallowance of decedent's distributive_share of mountain view's partnership items respondent filed an objection to petitioners' motion to restrain collection asserting that the court lacks jurisdiction to restrain respondent's collection efforts under the circumstances presented in further response however respondent conceded that all assessments entered against decedent's_estate were improper on the ground that mrs callaway's request_for_prompt_assessment filed on behalf of decedent's_estate on date was valid thereby resulting in the immediate conversion of decedent's mountain view partnership items to nonpartnership_items under sec_6231 and sec_301_6231_c_-8t temporary proced admin regs fed reg date in contrast respondent maintained that the date assessments entered against mrs callaway were proper on the ground that notwithstanding the conversion of decedent's partnership items to nonpartnership_items mrs callaway continued to be treated as a mountain view partner pursuant to sec_301_6231_a_2_-1t a temporary proced admin regs fed reg date following a hearing on the matter we denied petitioners' motion to restrain collection on the ground that the court's jurisdiction in this case is limited to a redetermination of the additions to tax determined in the notices of deficiency for affected items at issue and therefore the court lacks the as a result of respondent's concession respecting the validity of the request_for_prompt_assessment filed on behalf of decedent's_estate respondent further concedes that respondent was obliged to issue a notice_of_deficiency to decedent's_estate for or assess any deficiencies attributable to decedent's distributive_share of mountain view's partnership items for and by date see sec_6501 f authority under sec_6213 to restrain the assessment or collection of the underlying deficiencies see 96_tc_707 petitioners subsequently filed a motion for summary_judgment asserting that the notices of deficiency for affected items were issued beyond the period of limitations specifically relying on respondent's concession that decedent's partnership items converted to nonpartnership_items on date petitioners maintain that mrs callaway's partnership items likewise converted to nonpartnership_items at the same time on the ground that she is treated as a mountain view partner only due to her election to file joint returns with decedent for the years in issue following a preliminary review of petitioners' motion and considering respondent's concessions the court issued an order in which the court sua sponte raised issues respecting the validity of the notices of deficiency for affected items and the court's jurisdiction in this case as directed by the court the parties subsequently filed status reports and respondent filed a response in opposition to petitioners' motion discussion the notices of deficiency at issue in this case so-called affected items notices of deficiency were issued to petitioners pursuant to the unified_audit and litigation procedures set forth in sec_6221 through tax equity fiscal responsibility act of tefra publaw_97_248 96_stat_648 pursuant to the tefra provisions which apply with respect to all taxable years of a partnership beginning after date the tax treatment of any partnership_item generally is determined in a single proceeding at the partnership level 87_tc_1279 87_tc_783 partnership items include each partner's proportionate share of the partnership's aggregate items of income gain loss deduction or credit sec_6231 sec_301 a - a i proced admin regs partnership items are distinguished from affected items which are defined in sec_6231 as any item to the extent such item is affected by a partnership_item 95_tc_209 the first type of affected_item is a computational adjustment made to record the change in a partner's tax_liability resulting from the proper treatment of partnership items sec_6231 white v commissioner supra once partnership level proceedings are completed the commissioner is permitted to assess a computational adjustment against a partner without issuing a deficiency_notice sec a n c f energy partners v commissio89_tc_741 maxwell v commissioner supra pincite n the second type of affected_item is one that is dependent upon factual determinations to be made at the individual partner level n c f energy partners v commissioner supra pincite section a a i provides that the normal deficiency procedures apply to those affected items that require partner level determinations for instance additions to tax for negligence are affected items requiring factual determinations at the individual partner level n c f energy partners v commissioner supra pincite congress has vested the secretary with the authority to prescribe exceptions to the unified partnership audit and litigation procedures in particular sec_6231 provides that where the treatment of partnership items will interfere with the effective and efficient enforcement of the tefra provisions the secretary may promulgate regulations whereby such partnership items will be treated as nonpartnership_items one such special_enforcement_area is described in sec_301_6231_c_-8t temporary proced admin regs fed reg date which provides in those instances where partnership items are treated as nonpartnership_items adjustments to the partner's tax_liability generally are determined at the individual partner level through the normal deficiency procedures sec a a ii prompt assessment temporary --the treatment of items as partnership items with respect to a partner on whose behalf a request for a prompt assessment of tax under sec_6501 is filed will interfere with the effective and efficient enforcement of the internal revenue laws accordingly partnership items of such a partner arising in any partnership taxable_year ending with or within any taxable_year of the partner with respect to which a request for a prompt assessment of tax is filed shall be treated as nonpartnership_items as of the date that the request is filed in sum the partnership items of a partner on whose behalf a request_for_prompt_assessment of income_tax is filed under sec_6501 shall be treated as nonpartnership_items as of the date that the request_for_prompt_assessment is filed petitioners contend that they are entitled to summary_judgment that the notices of deficiency for affected items were issued beyond the period of limitations on the ground that both decedent's and mrs callaway's partnership items converted to nonpartnership_items upon the filing of a request_for_prompt_assessment on decedent's behalf on date although the filing of a request_for_prompt_assessment on behalf of a deceased partner presents special enforcement problems with respect to tefra partnership proceedings due to the abbreviated period of limitations associated with such a request in particular sec_6501 establishes an exception to sec_6501 which sets forth the general_rule that the amount of any income_tax shall be assessed within years after a tax_return is filed sec_6501 provides that a request_for_prompt_assessment may be filed with respect to any_tax except estate_tax for which a return is required by a decedent or by his estate during the period of administration or by a corporation and that such tax generally shall be assessed within months after filing of such request but not later than years after the return was filed petitioners' conversion theory and period of limitations arguments seem logical at first glance closer scrutiny reveals that if petitioners' conversion theory is correct with respect to both decedent and mrs callaway it follows that the court lacks jurisdiction on the ground that the notices of deficiency for affected items are invalid it is well settled that allegations concerning the period of limitations constitute an affirmative defense not a plea to the jurisdiction of this court 93_tc_730 see 98_tc_607 further the court has long held that where the court's jurisdiction and the period of limitations are both disputed issues in a case we are obliged to resolve first whether the court has jurisdiction 88_tc_1042 affd on other grounds 857_f2d_676 9th cir a jurisdictional issue can be raised by either party or the court sua sponte at any stage of the proceedings 96_tc_10 as explained in greater detail below if we agree with petitioners' conversion theory the notices of deficiency for affected items are invalid thereby rendering petitioners' period of limitations argument moot on the other hand if we reject petitioners' conversion theory the notices of deficiency for affected items are valid and petitioners' period of limitations argument fails for clarity we shall analyze the validity of the notices of deficiency separately with respect to decedent and mrs callaway jurisdiction estate of james t callaway the court's jurisdiction is dependent upon a valid notice_of_deficiency and timely filed petition for redetermination rule a c 93_tc_22 normac inc 90_tc_142 in 102_tc_683 the court held that a taxpayer may contest the validity of a notice_of_deficiency for affected items on the ground that the taxpayer's partnership items converted to nonpartnership_items by virtue of the commissioner's alleged failure to notify properly the taxpayer of partnership level proceedings consistent with crowell and considering respondent's concession that mrs callaway filed a valid request_for_prompt_assessment on behalf of decedent's_estate the court sua sponte raised the issue of the validity of the notices of deficiency for affected items insofar as the notices were issued to decedent's_estate in particular because decedent's mountain view partnership items converted to nonpartnership_items for the years at issue in this case pursuant to sec_301_6231_c_-8t temporary proced admin regs fed reg date it follows that the question of decedent's tax_liability for such items was excepted from the unified partnership audit and litigation procedures see sec a a ii normal deficiency procedures apply where partnership items converted to nonpartnership_items under sec_6231 and sec_6231 under the circumstances we hold that the notices of deficiency for affected items are invalid insofar as they were issued to decedent's_estate consequently we shall dismiss this case for lack of jurisdiction with respect to decedent's_estate and deny petitioners' motion for summary_judgment as moot insofar as it pertains to decedent's_estate jurisdiction elizabeth n callaway petitioners maintain that because mrs callaway is treated as a mountain view partner solely by virtue of having filed a joint_return with decedent for the years in issue her partnership items converted to nonpartnership_items at the same time that decedent's partnership items were so converted we disagree the controversy surrounding mrs callaway's status as a mountain view partner involves the effect of sec_301_6231_a_2_-1t a temporary proced admin regs fed reg date which provides in pertinent part persons whose tax_liability is determined indirectly by partnership items temporary -- a again petitioners' conversion theory raises the question of the validity of the notices of deficiency spouse filing joint_return with individual holding separate interest-- in general with exceptions not applicable here a spouse who files a joint_return with an individual holding a separate interest in the partnership shall be treated as a partner for purposes of subchapter_c of chapter of the code thus the spouse who files a joint_return with a partner will be permitted to participate in administrative and judicial proceedings respondent contends that notwithstanding the conversion of decedent's partnership items to nonpartnership_items pursuant to sec_301_6231_c_-8t temporary proced admin regs fed reg date mrs callaway was at all times treated as a mountain view partner who was fully entitled to participate in partnership level proceedings pursuant to sec_301_6231_a_2_-1t temporary proced admin regs fed reg date in this regard respondent asserts that the notices of deficiency for affected items are valid as to mrs callaway and that such notices were timely issued following the conclusion of the partnership level proceeding in the u s court of federal claims based upon the plain language of the provisions in question we agree with respondent that mrs callaway's partnership items did not convert to nonpartnership_items pursuant to sec_301_6231_c_-8t temporary proced admin regs fed reg date we begin with sec_301_6231_a_2_-1t a temporary proced admin regs fed reg date which plainly states that a spouse who files a joint_return with an individual holding a separate interest in a partnership shall be treated as a partner for purposes of subchapter_c of chapter of the code and will be permitted to participate in administrative and judicial proceedings in practical effect sec_301_6231_a_2_-1t a temporary proced admin regs fed reg date ensures that a spouse who may be jointly and severally liable under sec_6013 for any deficiency in tax arising with respect to a joint_return will be permitted to protect his or her interests by fully participating in any unified partnership level administrative or judicial proceeding by virtue of having filed joint returns with decedent during the years in issue mrs callaway clearly qualifies for treatment as a partner under this temporary_regulation in contrast we find no support for petitioners' position that mrs callaway's partnership items converted to nonpartnership_items as a consequence of the request_for_prompt_assessment filed on decedent's behalf sec_6501 establishes a limited exception to the normal 3-year period of sec_6013 provides if a joint_return is made the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint_and_several one of the fundamental characteristics of joint_and_several_liability is that the obligee respondent may proceed against the obligors joint taxpayers separately and may obtain a separate judgment against each 44_tc_420 limitations set forth in sec_6501 by providing that the assessment procedure may be expedited where a request_for_prompt_assessment is filed on behalf of a decedent the decedent's_estate or a corporation sec_6501 does not provide prompt assessment relief to a surviving_spouse see garfinkel v commissioner 67_tc_1028 estate of severt v commissioner tcmemo_1998_34 similarly we conclude that sec_301_6231_c_-8t temporary proced admin regs fed reg date which provides that partnership items will be treated as nonpartnership_items with respect to a partner on whose behalf a request for a prompt assessment of tax under sec_6501 is filed does not apply to the surviving_spouse of a deceased partner we note that in 99_tc_325 we rejected a similar argument under analogous circumstances in dubin v commissioner supra the taxpayer and her husband held a joint interest in a partnership because the taxpayer's husband was named as a debtor in a bankruptcy proceeding his partnership items converted to nonpartnership_items pursuant to sec_301_6231_c_-7t a temporary proced admin regs fed reg date however in a reversal of the positions of the parties in the instant case the commissioner argued in dubin that the partnership items of the taxpayer wife had converted to nonpartnership_items at the time that her husband filed for bankruptcy specifically the commissioner argued that the taxpayer's partnership items converted to nonpartnership_items by virtue of sec_6231 which provides that a husband and wife who have a joint interest in a partnership generally shall be treated as one person or partner in rejecting the commissioner's position we noted that sec_301_6231_a_12_-1t a temporary proced admin regs fed reg date establishes an exception to the general_rule stated in sec_6231 by providing that spouses holding a joint interest in a partnership are treated as separate partners further focusing on the bankruptcy rule set forth in sec_301_6231_c_-7t a temporary proced admin regs fed reg date we concluded that the temporary_regulation concerns itself with the treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding partnership items of such a partner are treated as nonpartnership_items dubin v commissioner supra pincite we concluded our analysis as follows the commissioner's position was born of the fact that the commissioner had not notified the taxpayer of the partnership level proceedings but rather issued the taxpayer a notice_of_deficiency the case was before the court on the parties' cross- motions to dismiss for lack of jurisdiction the commissioner argued that the case should be dismissed on the ground that the petition was not timely filed and the taxpayer moved to dismiss on the ground that the notice_of_deficiency was invalid because the focus in the bankruptcy rule is limited to the partner's status as a debtor in bankruptcy we are compelled here to look only to petitioner's status since she is the only partner before us and although she is a partner she is not in bankruptcy accordingly we find the bankruptcy rule to be inapplicable id consistent with our finding that the taxpayer's partnership items had not converted to nonpartnership_items in dubin we held the notice_of_deficiency issued to the taxpayer to be invalid although the dubin case involved the status of a taxpayer holding a joint partnership_interest with her husband whereas the instant case concerns the status of a taxpayer who filed a joint_return with her husband who held a separate partnership_interest we see no meaningful distinction between the controlling statutory and regulatory provisions in short just as the bankruptcy provision at issue in dubin was found to extend only to the partner spouse in bankruptcy the prompt assessment provision at issue in the instant case only extends to the deceased partner on whose behalf the request_for_prompt_assessment is filed based upon the preceding discussion we hold that mrs callaway's mountain view partnership items did not convert to nonpartnership_items at the time that decedent's partnership items converted to nonpartnership_items pursuant to sec_301_6231_c_-8t temporary proced admin regs fed reg date petitioners further contend that mrs callaway's partnership items converted to nonpartnership_items as a consequence of respondent's failure to notify properly petitioners of the beginning of the mountain view administrative proceedings again we find that the controlling statutory provisions do not provide any support for petitioners' position sec_6223 provides in pertinent part that the commissioner shall notify the partners of a tefra partnership of the beginning of an administrative_proceeding at the partnership level and the final administrative adjustment arising from such proceeding sec_6223 provides various remedies where the commissioner fails to provide timely notice under sec_6223 sec_6223 provides in pertinent part e effect of secretary's failure to provide notice -- application of subsection -- a in general --this subsection applies where the secretary has failed to mail any notice specified in subsection a to a partner entitled to such notice within the period specified in subsection d proceedings finished --in any case to which this subsection applies if at the time the secretary mails the partner notice of the proceeding-- respondent concedes that decedent is a mountain view notice_partner within the meaning of sec_6223 and sec_6231 a the period within which a petition for review of a final_partnership_administrative_adjustment under sec_6226 may be filed has expired and no such petition has been filed or b the decision of a court in an action begun by such a petition has become final the partner may elect to have such adjustment such decision or a settlement agreement described in paragraph of section c with respect to the partnership taxable_year to which the adjustment relates apply to such partner if the partner does not make an election under the preceding sentence the partnership items of the partner for the partnership taxable_year to which the proceeding relates shall be treated as nonpartnership_items proceedings still going on --in any case to which this subsection applies if paragraph does not apply the partner shall be a party to the proceeding unless such partner elects-- a to have a settlement agreement described in paragraph of section c with respect to the partnership taxable_year to which the proceeding relates apply to the partner or b to have the partnership items of the partner for the partnership taxable_year to which the proceeding relates treated as nonpartnership_items as previously mentioned respondent was unable to provide the court with copies of the nbap's purportedly issued to petitioners respecting mountain view's and taxable years however respondent did mail to decedent on date a nbap respecting mountain view's taxable_year further on date respondent mailed to petitioners copies of the fpaa's respecting mountain view's taxable years and relying on mrs callaway's date letter and respondent's failure to prove that nbap's were mailed to petitioners with respect to mountain view's and taxable years petitioners contend that their partnership items converted to nonpartnership_items either at the time that respondent should have mailed the nbap's to petitioners or upon delivery of mrs callaway's date letter requesting that her partnership items be treated as nonpartnership_items even assuming that respondent failed to mail the nbap's the record is clear that respondent mailed fpaa's to petitioners respecting mountain view's and taxable years on date--prior to the date that a partner other than the tmp filed a petition_for_readjustment of mountain view partnership items with the u s court of federal claims under the circumstances mrs callaway's remedy upon receipt of the fpaa's was to make an election under sec_6223 to have her mountain view partnership items treated as nonpartnership_items cf 94_tc_787 in this regard sec_301_6223_e_-2t c temporary proced admin regs fed reg date provides the election shall be made by filing a statement with the internal_revenue_service office mailing the notice regarding the proceeding within days after the date on which that notice was mailed under the circumstances we are not persuaded that mrs callaway's earlier letter to respondent dated date wherein mrs callaway requested that her partnership items be treated as nonpartnership_items constitutes a qualifying election within the meaning of sec_6223 finally we are satisfied that mrs callaway's letter dated date in which mrs callaway unilaterally attempted to terminate any extension of the period of limitations concerning the partnership for the years in issue was ineffective to overcome the tmp's broad grant of authority under section b b to execute agreements to extend the period of limitations because mrs callaway does not assert that the notices of deficiency for affected items were issued beyond year from the date that the u s court of federal claims' decision in the partnership level proceedings became final see sec d we deem the point conceded in sum we conclude that mrs callaway's partnership items did not convert to nonpartnership_items and the notices of deficiency for affected items are valid insofar as they were issued to mrs callaway petitioners have failed to prove that the period of limitations expired prior to the issuance of the notices of deficiency for affected items to mrs callaway consequently we shall deny petitioners' motion for summary_judgment insofar as the motion pertains to mrs callaway to reflect the foregoing an order will be issued dismissing this case for lack of jurisdiction as to the estate of james t callaway amending the caption of the case as appropriate and denying petitioners' motion for summary_judgment as moot insofar as the motion pertains to decedent's_estate and denying petitioner's motion for summary_judgment insofar as the motion pertains to mrs callaway