internal_revenue_service number release date index number ------------------------------------ ------------------------------- ------------ ------------------------- ------------------------ ----------------------------- 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 corp plr-121970-15 date date legend taxpayer year date company officials ------------------------------------ ------------------------------- ----------------------- ------------------------------------------------------------ --------------------- ---------------------------------------- ------------------------------------ ----- ------------------------------ ------------------------------------- company employee ------------------------------------ ------------------------------------- tax professional ------------------------------------------- ---------------- dear ---------- this letter responds to a letter dated date submitted on behalf of taxpayer requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election the extension is being requested for taxpayer and the members of its affiliated_group the taxpayer affiliated_group to make an election to file a consolidated federal_income_tax return with taxpayer as the common parent under sec_1_1502-75 of the income_tax plr-121970-15 regulations the election for year the information submitted in that request is summarized below taxpayer is the common parent of the taxpayer affiliated_group the taxpayer affiliated_group intended to elect to file a consolidated_income_tax_return with taxpayer as the common parent for year but for various reasons taxpayer did not timely file the election subsequently this request was submitted under sec_301_9100-3 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for the taxpayer affiliated group’s taxable_year for which it seeks to make the election taxpayer has represented that it does not seek to alter a return position for which an accuracy-related_penalty has been or could be imposed under sec_6662 sec_1_1502-75 of the income_tax regulations provides in part that an affiliated_group_of_corporations which did not file a consolidated_return for the immediately preceding_taxable_year may file a consolidated_return in lieu of separate returns for the taxable_year provided that each corporation which has been a member of the group during any part of the taxable_year for which the consolidated_return is to be filed consents in the manner provided in sec_1_1502-75 to the regulations under sec_1502 if a group wishes to exercise its privilege of filing a consolidated_return such consolidated_return must be filed not later than the last day prescribed by law including extensions of time for the filing of the common parent's return under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_1502-75 therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for taxpayer to file the election provided taxpayer shows it acted reasonably and in good_faith the requirements of sec_301 and are satisfied and granting relief will not prejudice the interests of the government plr-121970-15 information affidavits and representations submitted by taxpayer company officials company employee and tax professional explain the circumstances that resulted in the failure to timely file the election the information establishes that taxpayer reasonably relied on a qualified_tax professional and that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that taxpayer has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-3 until days from the date on this letter for taxpayer to file the election by filing a consolidated_return with taxpayer as the common parent and attaching a form_1122 for each of taxpayer’s affiliated subsidiaries for year taxpayer must attach a copy of this letter to the return alternatively if such return is filed electronically the requirement of attaching a copy of this letter to the return may be satisfied by attaching a statement to the return that provides the date and control number plr-121970-15 of this letter_ruling the above relief is conditioned on the taxpayer affiliated group’s tax_liability if any not being lower in the aggregate for all years to which the election applies than it would have been if the election had been timely made taking into account the time_value_of_money no opinion is expressed as to the taxpayer affiliated group’s tax_liability for the years involved a determination thereof will be made by the applicable director’s office upon audit of the federal_income_tax returns involved we express no opinion with respect to whether in fact the taxpayer’s affiliated_group qualifies substantively to file a consolidated_return in addition we express no opinion as to the tax effects or consequences of filing the return or the election late under the provisions of any other section of the code or regulations or as to the tax treatment of any conditions existing at the time of or effects resulting from filing the return or the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made by taxpayer company officials company employee and tax professional however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election penalties and interest that would otherwise be applicable if any continue to apply this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent plr-121970-15 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely _____________________________ ken cohen senior technician reviewer branch office of associate chief_counsel corporate cc


t c memo united_states tax_court terry d albright petitioner v commissioner of internal revenue respondent docket no filed date terry d albright pro_se kelley andrew blaine for respondent memorandum findings_of_fact and opinion gerber judge respondent determined the following income_tax deficiencies and additions to tax and penalties for petitioner’s and tax years year deficiency penalty sec_6662 addition_to_tax sec_6651 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure --- 1the tax_year is in controversy solely because of computational adjustments caused by an increase in petitioner’s adjusted_gross_income for which eliminated some portion of a net_operating_loss that had been carried over from findings of fact1 petitioner resided in idaho at the time his petition was filed petitioner sold his residence in middletown idaho on date for dollar_figure he did not report any of the gross sale price or resulting gain on his federal_income_tax return after an examination respondent determined that petitioner had an dollar_figure capital_gain from the sale of his residence respondent computed the gain by taking into account basis exclusions capital losses and other adjustments as follows gross_proceeds from sale of residence less sales expenses cost of home improvements gain on sale of residence exclusion from gain on sale of residence taxable gain from sale of residence dollar_figure big_number big_number big_number dollar_figure big_number dollar_figure 1the parties’ stipulated facts and exhibits are incorporated by this reference less long-term_capital_loss carryover from capital_loss attributable to a partnership loss net_long-term_capital_gain plus dollar_figure claimed by petitioner against ordinary_income based on capital_loss_carryover total adjustment determined by respondent big_number big_number dollar_figure dollar_figure dollar_figure petitioner does not dispute that he had capital_gain from the sale of his residence instead he contends that respondent erroneously failed to allow additional_amounts of basis and losses to further reduce the amount of taxable capital_gain in particular petitioner had a dollar_figure home equity loan secured_by his residence when the residence was sold proceeds were used to pay off the home equity loan petitioner used the dollar_figure proceeds for operating capital with respect to his business enterprises because the business records are not available to him he is unable to show that the expenditures resulted in a deductible loss that would further reduce his taxable_income for petitioner asserts that he expended approximately dollar_figure in attorney’s fees in connection with his attempt to gain access to his business records and to address issues concerning the trust which held his residence he contends that his capital_gain should also be reduced by this amount of the dollar_figure dollar_figure represented attorney’s fees to resolve the issues related to the trust and the sale of his house the remaining dollar_figure was used to pay petitioner’s bankruptcy attorney in connection with the chapter bankruptcy he filed in petitioner has not substantiated these amounts petitioner obtained an extension of time to file his income_tax return to date however the return was not signed by petitioner until date and was not filed with respondent until date opinion petitioner does not dispute that he had a gain from the sale of his residence during he sold his residence which originally cost a little more than dollar_figure for almost dollar_figure he failed to include the proceeds or any gain from the sale on his income_tax return after petitioner filed a late return for the year his return was selected for audit and ultimately respondent issued a notice_of_deficiency in which the sale proceeds were adjusted reduced by allowance of additional basis and an exclusion under sec_121 finally losses were applied against the taxable gain from the sale of the residence with a small adjustment to arrive at net unreported capital_gain of dollar_figure that 2section references are to the internal_revenue_code in effect for the taxable years under consideration rule references are to the tax_court rules_of_practice and procedure unreported income was the source of petitioner’s income_tax deficiency and the computational adjustment that generated a income_tax deficiency petitioner contends that respondent’s determinations are in error because respondent failed to reduce the amount of capital_gain by three items the first of petitioner’s contentions is that his dollar_figure home equity loan secured_by his residence and which was paid off from the proceeds of the sale should be subtracted from the amount of gain petitioner’s theory is that he had used the proceeds from the home equity loan to operate his business which had a net_loss unfortunately petitioner did not have the records that would show any amount of loss and or that the proceeds of the loan were connected with the loss petitioner bears the burden3 of showing his entitlement to the loss which he has failed to do see rule a next petitioner contends that he is entitled to deduct dollar_figure in attorney’s fees respondent contends that to the extent that petitioner can show that he actually paid attorney’s fees he has not shown that they were not already allowed by respondent as part of the expenses in connection with the sale of his residence 3no issue has been raised by the parties concerning sec_7491 or whether there has been a shift in the burden_of_proof or going forward with the evidence accordingly petitioner has not established his entitlement to any such shift in the burden_of_proof under sec_7491 regarding his liability for the deficiencies through documentary_evidence and testimony petitioner has shown that of the dollar_figure claimed dollar_figure represented attorney’s fees to resolve issues related to the sale of his residence and in connection with the trust in which title to the residence was held he has also shown that this amount was not already allowed by respondent accordingly the income_tax deficiency should be reduced or adjusted to reflect a dollar_figure reduction of capital_gain from the sale of petitioner’s residence lastly petitioner contends that the capital_gain should be reduced by dollar_figure representing fees that he claims he paid to his bankruptcy attorney in connection with handling his chapter bankruptcy proceeding even if petitioner were able to substantiate the amount of that payment he has not explained or shown why any payment to an attorney who represented him in a business-related chapter bankruptcy proceeding in would result in a reduction of the sale proceeds or gain from the sale of his personal_residence in respondent determined that petitioner was liable for the sec_6651 addition_to_tax for failure to timely file his income_tax return that section provides for an addition of per month up to for late filing petitioner’ sec_4to the extent that a reduction in the deficiency causes a computational adjustment to the income_tax deficiency we leave that computation to the parties income_tax return was filed with respondent on date days after the date extended deadline that petitioner had obtained petitioner bears the burden of providing an explanation or showing that there was reasonable_cause for the late filing see rule a 116_tc_438 petitioner has not provided any explanation or shown reasonable_cause for the late filing and is accordingly liable for the sec_6651 addition_to_tax respondent also determined that petitioner was liable for the sec_6662 accuracy-related_penalty alternatively due to either negligence or a substantial_understatement_of_income_tax see sec_6662 and b and negligence is defined to include any failure to make a reasonable attempt to comply with the internal_revenue_code a substantial_understatement_of_income_tax exists if an understatement exceeds the greater of of the tax required to be shown on the return or dollar_figure sec_6662 petitioner’s failure to report the dollar_figure proceeds from the sale of his residence resulted in a sizable income_tax deficiency for his tax_year petitioner did not provide any explanation as to why he did not report the proceeds from the sale of his residence further he did not show reasonable_cause for his failure under those circumstances we hold that petitioner is liable for the section a accuracy-related_penalty on the resulting underpayment for his tax_year with respect to the tax_year it appears that there was no substantial_understatement_of_income_tax accordingly we must consider whether the underpayment for was due to negligence the underpayment was attributable to changes in capital_loss carryovers and technical adjustments that caused a recomputation of his tax_liability under those circumstances we do not find that petitioner failed to make a reasonable attempt to comply with the internal_revenue_code we accordingly hold that petitioner is not liable for the sec_6662 accuracy-related_penalty for to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number -------------------------- --------------------------------------- ---------------------- ------------------------ -------------------------- --------------------------------------- ----------------------------- 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 plr-115494-05 date january legend legend decedent spouse ------------------------------------------------- --------------------------------------------------- residence ----------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------- decedent’s qprt -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- spouse’s qprt ------------------------------------------------------------- year ---------------------------------------------------------- ------------------- ----------------------- ------------------- ------------------- ------- ------- ----------------- ---------------- ---------------------- ---------------------- date date date date year year year daughter daughter daughter daughter ------- ------- cite plr-115494-05 ----------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- -- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------ cite ------------------------------------------------------------------------------- state dear ---------------- ----------------------------------------------------------- --------- this letter is in response to a letter dated date and prior correspondence from your authorized representative requesting rulings concerning the income and gift_tax consequences of the transaction described below the facts and representations submitted are summarized as follows on date decedent and spouse each created a qualified_personal_residence_trust decedent’s qprt and spouse’s qprt decedent and spouse each conveyed a one-half undivided_interest in their principal_residence residence to their respective trusts the trusts were intended to qualify as qualified personal_residence trusts described in sec_25_2702-5 of the gift_tax regulations the terms of each trust are identical except that decedent is the grantor trustee and primary beneficiary of decedent’s qprt and spouse is the grantor trustee and primary beneficiary of spouse’s qprt under article if the grantor is unable to serve as trustee of the respective trust then decedent or spouse as the case may be is appointed as the successor trustee if the decedent or spouse is unable to serve then daughter is appointed as trustee article of each qprt provides that until the first to occur of years after the date the trust is established or the earlier death of the grantor the trust term the grantor is to be paid the net_income at least annually as required by sec_25_2702-5 is entitled to the exclusive use of residence held in the trust and is to pay all expenses relating to residence article provides that the trust will cease to be a qualified_personal_residence_trust if the residence ceases to be used or held for use as a personal_residence by the grantor or as to proceeds of sale or insurance proceeds as provided in sec_25_2702-5 if damage or destruction renders the residence not usable as a residence sec_25 c iii is to apply if the trust ceases to be a qualified_personal_residence_trust as to residence then within thirty days the trust corpus is to be held in a separate share and the grantor’s interest is to be converted into a qualified_annuity_interest as plr-115494-05 defined by sec_25_2702-3 with the smallest fixed payment permitted by sec_25_2702-5 for the balance of the trust term under article upon the expiration of the trust term the trustee is to distribute the principal of the trust if the grantor is then living in equal shares to the grantor’s then living daughters or if no such daughter is then living to the legal representatives of the estate of the last to die of such daughters if the grantor is not living the corpus is to be distributed to the grantor’s personal representative to be disposed of as part of the grantor’s estate article of decedent’s qprt and spouse’s qprt provide respectively that the trust shall be irrevocable and that the grantor shall have no right or power whether alone or in conjunction with others in whatever capacity to alter amend revoke or terminate the trust decedent and spouse each timely filed united_states gift and generation- skipping transfer_tax returns form sec_709 reporting their respective transfer of a one-half interest in residence to their respective trusts at the time decedent’s qprt and spouse’s qprt were established decedent and spouse had four daughters daughter daughter daughter and daughter in year the year the trusts were established decedent informed daughter that decedent and spouse had created decedent’s qprt and spouse’s qprt decedent also informed daughter that she was named as the successor trustee of the qprts in the event decedent and spouse could no longer serve as trustee subsequent to the creation of the trusts during year spouse developed severe health problems and became distressed regarding the loss of residence on the termination of the qprts in year on date eight months prior to date the expiration date of the eight year term of each qprt and notwithstanding article of each trust the decedent and spouse executed deeds conveying the interests in residence held in their qprts to revocable trusts established by decedent and spouse it is represented that daughters were not consulted advised of or aware of the decedent’s and spouse’s actions in transferring residence to the revocable trusts further it is represented that daughters did not become aware of the conveyances until year several years after date when the parties began the process of selling residence daughters at the advice of counsel made a demand against decedent and spouse for the sale proceeds based on fraud breach of fiduciary duties and tortious interference with their interest in the residence subsequent to the closing of the sale of residence and the demand the proceeds have been held in escrow pending the determination of the rights of the parties and resolution of this conflict decedent died on date decedent’s estate plr-115494-05 and spouse to avoid the costs of litigation with daughters offered in settlement of the matter to deliver all of the proceeds of the sale to daughters equally in exchange daughters agree to accept the sales proceeds in full settlement of all claims against decedent’s estate and spouse decedent’s estate spouse daughter daughter daughter and daughter request the following rulings the payment of the sales proceeds of residence to daughters will not constitute a taxable gift by spouse or the beneficiaries of decedent’s revocable_trust or the beneficiaries of his estate daughters did not make a taxable gift upon the transfer of residence from decedent’s qprt and spouse’s qprt to decedent’s and spouse’s revocable living trusts daughters are the proper parties for reporting the gain from the sale of the residence daughters will determine the basis of residence in determining the gain from the sale under sec_1015 and the holding_period of the residence under sec_1223 ruling_request sec_1 and sec_2501 provides for the imposition of a gift_tax on the transfer of property by gift sec_2511 provides that the gift_tax applies to a transfer by way of gift whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible sec_25_2511-2 of the gift_tax regulations provides that the gift_tax is an excise on the donor’s act of making the transfer and is measured by the value of the property passing from the donor sec_25_2511-2 provides that a gift of property is complete to the extent the donor has so parted with dominion and control as to leave him no power to change its disposition whether for his own benefit or for the benefit of another considered whether a state trial court's characterization of property rights conclusively binds a federal court or agency in a federal estate_tax controversy the court concluded that the decision of a state trial_court as to an underlying issue of state law should not be controlling when applied to a federal statute rather the highest court of the state is the best authority on the underlying substantive rule_of state law to be applied in the federal matter if there is no decision by that court then the federal authority must apply what it finds to be state law after giving proper regard to the state trial court's determination and to relevant rulings of other courts of the state in 387_us_456 the court in view of estate of bosch whether an agreement settling a dispute is effective plr-115494-05 for transfer_tax purposes depends on whether the settlement is based on a valid enforceable claim asserted by the parties and to the extent feasible produces an economically fair result 674_f2d_761 9th cir in the instant case the terms of each qprt provided that on termination of the term of the trust the trust corpus was to be distributed to daughters the trusts contained no provision whereby the trust corpus would become distributable to decedent and spouse as grantors for example as provided in sec_25_2702-5 further article of each qprt provided that the trust was irrevocable and that the grantor had no right or power whether alone or in conjunction with others in whatever capacity to alter amend revoke or terminate the trust thus decedent’s and spouse’s action in withdrawing residence from the qprts was not authorized under the terms of the trusts further it is represented that daughters were not aware of and did not consent to decedent’s and spouse’s actions in transferring residence to the revocable trusts under these circumstances daughters did not relinquish or otherwise transfer their respective remainder interests in the corpus of the qprts upon the transfer of residence from decedent’s qprt and spouse’s qprt to decedent’s and spouse’s revocable living trusts accordingly daughters did not make taxable_gifts upon the transfer of residence from the qprts to the revocable living trusts further under the terms of the trusts and applicable state law daughters as remainder beneficiaries of the qprts possessed enforceable claims with respect to residence that had not been otherwise relinquished see cite cite accordingly the payment of the sales proceeds of residence to daughters in settlement of their claims to residence will not constitute a taxable gift by spouse or the beneficiaries of decedent’s revocable_trust or the beneficiaries of his estate ahmanson foundation v united_states cited above ruling_request sec_61 of the internal_revenue_code provides that gross_income includes gains derived from dealings in property sec_1001 provides that the gain from the sale_or_other_disposition of property shall be the excess of the amount_realized therefrom over the adjusted_basis provided in sec_1011 for determining gain and the loss shall be the excess of the adjusted_basis provided in sec_1011 for determining loss over the amount_realized sec_1001 states that the amount_realized from the sale_or_other_disposition of property shall be the sum of any money received plus the fair_market_value of the property other than money received under sec_1001 except as plr-115494-05 otherwise provided in subtitle a the entire amount of gain_or_loss determined under sec_1001 on the sale_or_exchange of property shall be recognized sec_1_1001-1 of the income_tax regulations provides that the gain_or_loss realized from the conversion of property into cash or from the exchange of property for other_property differing materially either in_kind or in extent is treated as income or loss sustained sec_121 provides that a taxpayer's gross_income will not include gain from the sale_or_exchange of property if during the five-year period ending on the date of the sale_or_exchange such property has been owned and used by the taxpayer as the taxpayer's principal_residence for periods aggregating two years or more the full exclusion is available only once every two years sec_121 provides that the amount of gain excluded from gross_income will not exceed dollar_figure or dollar_figure for married taxpayers filing jointly provided certain requirements are met as discussed above at the time of the sale daughters possessed an enforceable claim to residence as the remainder beneficiaries under the terms of the qprts because daughters were the owners of residence the sale of residence should be reported by daughters daughters should report the gain on the sale of residence in year additionally daughters have also represented that they do not meet the requirements of sec_121 and accordingly can not exclude any gain on the sale of residence ruling_request sec_1015 provides that if property is acquired by a transfer in trust other than a transfer in trust by a gift bequest or devise the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer date by transfer in trust other than by transfer in trust by gift bequest or devise the basis_of_property so acquired is the same as it would be in the hands of the grantor increased by the amount of gain or decreased in the amount of loss recognized to the grantor on the transfer under the law applicable to the year in which the transfer was made if the taxpayer acquired the property by transfer in trust this basis applies whether the property be in the hands of the trustee or the beneficiary and whether acquired prior to termination of the trust and distribution of the property or thereafter sec_1_1015-2 provides that in the case of property acquired after sec_1223 provides that in determining the period for which a taxpayer has held property however acquired there is included the period for which such property was held by any other person if the property has for the purpose of determining gain plr-115494-05 or loss from a sale_or_exchange the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of that other person under sec_1015 the basis of residence in the hands of daughters was determined by reference to its basis in the hands of the trust grantors decedent and spouse and was used in determining the gain on the sale of the residence under sec_1223 therefore the holding_period of residence in the hands of daughters included the holding_period of decedent and spouse except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in addition we express or imply no opinion regarding the value of the property transferred to the trust the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative each ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely george l masnik chief branch passthroughs special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c memo united_states tax_court stanley patrick zurn petitioner v commissioner of internal revenue respondent docket no filed date richard j radcliffe for petitioner donna l crosby for respondent memorandum opinion gale judge in a notice_of_deficiency respondent determined the following deficiencies additions to tax and accuracy-related_penalties with respect to petitioner’s federal income taxes deficiency addition_to_tax sec_6651 penalty sec_6662 dollar_figure big_number big_number dollar_figure dollar_figure --- dollar_figure dollar_figure dollar_figure --- dollar_figure year unless otherwise noted all section references are to the internal_revenue_code code of as amended and in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure after concessions the issues for decision are whether the notice_of_deficiency is time barred an issue petitioner raises for the first time on brief whether property transactions that petitioner entered into in and qualify for like-kind_exchange treatment pursuant to sec_1031 whether petitioner is liable for additions to tax under sec_6651 for and and whether petitioner is liable for accuracy-related_penalties under sec_6662 for and 1petitioner concedes that he is not entitled to net_operating_loss carryovers claimed of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively petitioner further concedes that he had dollar_figure of unreported interest_income for background after an evidentiary hearing regarding the admissibility of an exhibit he proffered petitioner informed the court that he did not intend to call any witnesses or to testify at trial respondent thereupon agreed not to call witnesses and the parties submitted this case fully stipulated pursuant to rule accordingly our findings_of_fact are based on the parties’ stipulation of facts and the attached exhibits and are given the circumstances somewhat sketchy and incomplete at the time he filed the petition petitioner resided in california examination for the years at issue commenced on date at which time petitioner had not filed a return or obtained an extension of the filing deadline for any of the years petitioner thereafter filed a return for each year in issue in july through date 2the exhibit an affidavit with attachments was held inadmissible 3within the stipulation respondent reserved objections on the ground of relevance to petitioner’s proffered exhibits 31-p 32-p 33-p 34-p and 35-p we conclude that the exhibits have some modest relevance and therefore admit them petitioner reserved an objection to respondent’s proffered exhibit 36-r on the ground of relevance exhibit 36-r is a copy of a date letter from revenue_agent hyung lee informing petitioner that his and tax returns were under examination respondent argues this exhibit is relevant to establish when the examination of the tax years in issue commenced we concur petitioner’s objection is overruled before and during the taxable years in issue petitioner owned numerous residential rental properties in the los angeles area three of which are relevant to this case third avenue third avenue property montclair street montclair property and north las palmas avenue las palmas property third avenue property petitioner transferred the third avenue property to arthur peck in date petitioner subsequently entered into a land exchange_agreement dated date with cltc exchange co cltc the land exchange_agreement provided that petitioner would pay a dollar_figure fee to cltc when he conveyed the third avenue property to it and in return cltc would act as his intermediary to facilitate a sec_1031 exchange of that property for another property to be identified by him mr peck thereupon on date executed a dollar_figure promissory note in favor of cltc that was secured_by a deed_of_trust on the third avenue property recorded on date also on date all american escrow corp prepared an escrow statement for cltc with respect to the closing of the sale of the third avenue property to arthur peck for total consideration of dollar_figure the escrow statement indicates that in addition to the promissory note the balance of the consideration offset by a buyer’s credit of dollar_figure was apparently paid in cash petitioner bore all closing costs for the transaction after the buyer’s credit closing costs taxes title insurance escrow charges realtor’s commission cltc fee miscellaneous charges and payoff of existing mortgage indebtedness the statement showed a balance due to cltc for petitioner’s exchange account of dollar_figure on date cltc sent petitioner a letter advising him that escrow had closed on the third avenue property on date and that pursuant to sec_1031 he had days from the date of closing to identify an exchange property to be acquired by letter dated date cltc advised petitioner that interest earned on the balance in his exchange account had increased the total in the account to dollar_figure 4the escrow statement indicates that the buyer of the third avenue property was given a dollar_figure buyer’s credit the nature or purpose of this credit is not disclosed in the record but it casts some doubt that the consideration paid for the third avenue property was in fact dollar_figure on date petitioner executed a contract for sale of mineral rights third avenue mineral contract5 with u s h n c limited inc hnc the third avenue mineral contract provided that petitioner agreed to purchase of the oil and mineral rights of an oil_and_gas property known as the rankin unit for dollar_figure and a interest in the equipment contained in or on the rankin unit for dollar_figure according to the representations hnc made in the third avenue mineral contract hnc purchased rankin field on which various rankin unit wells were located sometime after date for a biological oil stimulation experiment-- apparently an experimental means of recovering oil from wells experiencing declines in production according to hnc’s representations rankin field comprised a number of wells referred to as rankin units the third avenue mineral contract provided that petitioner hereby pays hnc a deposit of dollar_figure the approximate balance in his cltc exchange account for the interest with the balance of the purchase_price being due and payable on date or otherwise to be paid through the profits of the rankin unit disbursed to him the third avenue mineral contract also contained a buyback provision hnc agreed to buy back petitioner’ sec_25 interest in the rankin 5for convenience we use the term contract to describe the document executed by petitioner and hnc no implication is intended concerning whether the parties effected an enforceable agreement between themselves unit for dollar_figure at the end of months from the contract date if petitioner spent considerable funds to develop the field under hnc directions and has been unable to increase its production on a date not disclosed by the record petitioner hnc and cltc executed a substitution agreement third avenue substitution whereby cltc was substituted for petitioner under the third avenue mineral contract with respect to the oil and mineral rights of the rankin unit but not the equipment interest the third avenue substitution provided that cltc was obligated upon receipt of instructions executed by all parties to the agreement to deliver to hnc the following a wire transfer of dollar_figure the originals of the dollar_figure promissory note and the deed_of_trust securing it given to cltc by the purchaser of the third avenue property an assignment of the foregoing deed_of_trust in favor of hnc and a fire hazard insurance_policy on the third avenue property in turn hnc was obligated to deliver directly to petitioner an executed assignment bill of sale and conveyance of the interest in the rankin unit as identified in the third avenue mineral contract 6the record contains an undated addendum to the third avenue substitution which provided that the balance of the purchase_price of the interest in the rankin unit in excess of the exchange credit of dollar_figure shall be the sole responsibility of petitioner and hnc shall look only to petitioner for performance of all obligations thereunder the record contains two typewritten documents wherein petitioner not cltc authorizes a bank wire of dollar_figure to hnc one dated date and the other dated date hnc executed an assignment bill of sale and conveyance of a interest in the rankin unit to petitioner effective date on date cltc executed an assignment to hnc of arthur peck’s original dollar_figure note and the deed_of_trust securing it there is no evidence that petitioner ever paid the balance of the dollar_figure purchase_price due under the third avenue mineral contract for the interest in the rankin unit montclair property petitioner transferred the montclair property to elizabeth pilate in date ms pilate executed a dollar_figure promissory note in favor of cltc on date secured_by a deed_of_trust on the montclair property that was recorded on date on date all american escrow corp 7there is no evidence in the record that this document was ever recorded 8there is no evidence in the record that this document was ever recorded prepared an escrow statement for cltc9 with respect to the closing of the sale of the montclair property to ms pilate for total consideration of dollar_figure the escrow statement indicates that in addition to the promissory note the balance of the consideration offset by a buyer’s credit of dollar_figure was apparently paid in cash petitioner bore all closing costs after the buyer’s credit closing costs taxes title insurance escrow charges realtor’s commission cltc’s fee miscellaneous charges and payoff of existing mortgage indebtedness the statement showed a balance due to cltc for petitioner’s exchange account of dollar_figure on date--the same day that the buyer of the montclair property executed a promissory note and before the closing of the montclair transaction-- petitioner executed a second contract for sale of mineral rights montclair mineral contract with hnc like the third avenue mineral contract the montclair mineral contract provided that petitioner agreed to purchase of the oil and 9in context the escrow statement clearly establishes that cltc was performing a role in the montclair transaction comparable to the role it assumed in the third avenue transaction however the record does not contain a land exchange_agreement or comparable instrument delineating the rights and obligations of petitioner and cltc in connection with the transfer of montclair 10as with the third avenue transaction the escrow statement for the montclair transaction indicates that the buyer of montclair was given a dollar_figure credit the nature or purpose of this credit is not disclosed in the record but it casts some doubt that the consideration paid for montclair was in fact dollar_figure mineral rights of the rankin unit and was identical in all material respects to the third avenue mineral contract except for the execution date the purchase_price of the share of the oil and mineral rights dollar_figure instead of dollar_figure and the absence of hnc’s repurchase obligation the montclair mineral contract likewise provided that petitioner hereby pays a deposit of dollar_figure the approximate balance in his cltc exchange account for the interest with the balance of the purchase_price being due and payable on date or otherwise to be paid through the profits of the rankin unit disbursed to petitioner on date petitioner and hnc executed a substitution agreement montclair substitution whereby cltc was substituted for petitioner under the montclair mineral contract with respect to the oil_and_gas mineral rights of the rankin unit but not the equipment interest although cltc was listed as a party to the document no one signed on its behalf the montclair substitution provided that cltc was responsible upon receipt of instructions executed by all parties to the agreement for delivering to hnc the following a check payable to hnc for dollar_figure the originals of the dollar_figure note and deed_of_trust securing it given to cltc and an assignment of the foregoing deed_of_trust in favor of hncdollar_figure in turn hnc was obligated to deliver directly to petitioner an executed assignment bill of sale and conveyance of the interest in the rankin unit as described in the second contract there is no evidence that either petitioner or cltc made the dollar_figure payment to hnc contemplated in the montclair mineral contract and the montclair substitution however hnc executed an assignment bill of sale and conveyance of a interest in the rankin unit to petitioner effective february dollar_figure over a month later on date cltc executed an assignment to hnc of the original of the dollar_figure note and the deed_of_trust securing it given by the purchaser of the montclair propertydollar_figure there is no evidence that petitioner ever paid the balance of the dollar_figure purchase_price due under the montclair mineral contract for a interest in the rankin unit 11the montclair substitution also contained a provision comparable to that included in the addendum to the third avenue substitution namely that the balance of the purchase_price of the interest in the rankin unit in excess of the exchange credit of dollar_figure would be the sole responsibility of petitioner 12there is no evidence in the record that this document was ever recorded 13there is no evidence in the record that this document was ever recorded las palmas property petitioner transferred the las palmas property to michael and lynn weeks and curtis abish in date on date petitioner and cltc entered into a land exchange_agreement under which cltc agreed to act as an intermediary for him to facilitate a sec_1031 exchange of the las palmas property for another property to be identified by him the agreement provided that cltc’s fee for the duties assumed in the agreement was dollar_figure to be paid_by petitioner upon conveyance of the las palmas property to cltc on date petitioner executed a contract for sale of mineral rights las palmas mineral contract with hnc the las palmas mineral contract was identical in most respects to the third avenue and montclair mineral contracts although the subject property was the oil and mineral rights of the vicksburg zone of the rankin unit the purchase_price was dollar_figure and there was no buyback obligation on hnc’s part as with the other two mineral contracts with hnc petitioner was obligated to pay a deposit upon contract execution in this case dollar_figure with the balance of the purchase_price being due on date or otherwise to be paid through the twenty-five of the profits from the rankin unit which are disbursed to petitioner petitioner’s share of the vicksburg zone under the las palmas mineral contract however was not limited to on date the wilshire escrow co prepared a seller’s closing statement with respect to the las palmas property indicating that the consideration paid for the property was dollar_figure and that after payment of closing costs escrow fees title insurance taxes the outstanding balance on existing mortgage indebtedness and miscellaneous charges the amount due to petitioner was dollar_figure unlike the escrow statements for the other two properties the las palmas closing statement contained no entry indicating payment of cltc’s fee from the sale proceeds and there is no other evidence that this fee was ever paid also on june a deed_of_trust on the las palmas property with petitioner as beneficiary was recorded securing the payment of a dollar_figure promissory note to petitioner from the purchasers of the las palmas property on date petitioner hnc and cltc executed a substitution agreement las palmas substitution whereby cltc was substituted for petitioner under the las palmas mineral contract with respect to the oil_and_gas mineral rights of the vicksburg zone of the rankin unit but not the equipment interest the las palmas substitution provided that cltc was responsible upon receipt of instructions executed by all parties to the agreement to deliver to hnc a check for dollar_figure the originals of the dollar_figure promissory note and deed_of_trust securing it given to petitioner by the purchasers of the las palmas property and an assignment of the foregoing deed_of_trust in favor of hnc in turn hnc was obligated to deliver directly to petitioner an executed assignment bill of sale and conveyance of the vicksburg zone of the rankin unit as described in the las palmas mineral contract there is no evidence that cltc or petitioner paid dollar_figure to hnc on or after date that the originals of the promissory note and deed_of_trust referenced in the las palmas substitution were turned over to hnc or that the deed_of_trust was assigned to hnc there is also no evidence that hnc executed and delivered to petitioner an assignment bill of sale and conveyance of the vicksburg zone of the rankin unit or any other instrument purporting to make such a conveyance reporting of the transactions and notice_of_deficiency on date an internal revenue_agent sent petitioner a letter advising him that his federal_income_tax returns for and had been assigned to the agent for examinationdollar_figure petitioner thereafter submitted a federal_income_tax return for on date reporting realized gain of dollar_figure on the exchange of the third avenue property for property described as the rankin unit oil field in the state of texas and claiming nonrecognition treatment for the gain under section dollar_figure his computation included the claim that he had assumed a mortgage of dollar_figure on the rankin unit property respondent issued a notice_of_deficiency determining that petitioner had failed to establish that he was entitled to exclude under the code any portion of the gain from the disposition of his residential_rental_property the determination computed the gain on the sale on the basis of available information the determination concluded that petitioner must recognize capital_gain of dollar_figure for on the transaction on his federal_income_tax return for submitted on date after the examination had commenced petitioner reported realized and recognized gain 14although the agent’s letter referred to petitioner’s returns for the years referenced above it is undisputed that petitioner had not submitted returns for those years when the letter was sent 15petitioner reported that the third avenue property was transferred and the rankin unit replacement_property was identified and actually received all on date however on his federal_income_tax return for petitioner reported that the third avenue property had been exchanged on date of zero on the exchange of the montclair property for property described as oil mineral rights with an address of us hnc a texas corp s san gabriel pasadena pursuant to sec_1031 his computation included the claim that he had assumed a mortgage of dollar_figure on the property received in the exchange in addition petitioner reported realized gain of dollar_figure on the exchange of the las palmas property for property that was not identified and claimed nonrecognition treatment for the gain under sec_1031 the notice_of_deficiency determined that petitioner had failed to establish that he was entitled to exclude under the code any portion of the gain from the disposition of his residential rental properties and recomputed the gain on the sales on the basis of available information the determination concluded that petitioner must recognize capital_gain of dollar_figure for on the transactions petitioner’s federal_income_tax returns for and were submitted on august and date respectively petitioner’s and returns did not report any income expense or other tax item arising from an interest in an oil and or mineral_property discussion i statute_of_limitations petitioner argues for the first time on brief that the notice_of_deficiency is time barred because respondent failed to issue it within the three-year period provided by sec_6501 petitioner did not plead the statute_of_limitations as an affirmative defense as required by rule petitioner did not raise the issue during the evidentiary hearing nor has he at any time moved to amend the pleadings so as to include this omitted affirmative defense petitioner’s failure to plead the statute_of_limitations in his petition or in an amended pleading constitutes a waiver of the issue moreover petitioner’s raising of the issue for the first time on brief would prejudice respondent who has been deprived of the opportunity to present relevant evidence such as evidence that petitioner consented to extend the period of limitations see rule sec_39 sec_41 71_tc_1 remanded on other grounds 660_f2d_416 10th cir we decline to consider this issuedollar_figure 16we note that a claim that a notice_of_deficiency was issued after expiration of the period of limitations does not affect this court’s jurisdiction see 766_f2d_401 9th cir badger materials inc v continued ii sec_1031 deferral of gain recognition a background the commissioner’s determinations set forth in a notice_of_deficiency are generally presumed correct and the taxpayer bears the burden of proving that the determinations are in errordollar_figure see rule a 290_us_111 petitioner contends that he is entitled to nonrecognition treatment pursuant to sec_1031 with respect to the gains realized as a result of his dispositions of the third avenue montclair and las palmas properties respondent argues that petitioner has failed to establish that he is entitled to sec_1031 treatment with respect to the realized gains for various reasons including that he has failed continued commissioner 40_tc_1061 see also sec_7459 17petitioner also argues for the first time on brief that respondent bears the burden_of_proof pursuant to sec_7491 that provision is effective however only for court proceedings arising out of examinations commenced after date internal_revenue_service restructuring and reform act of rra pub_l_no sec stat pincite the examination for the years in issue commenced with the revenue agent’s letter sent to petitioner on date consequently sec_7491 is inapplicable see 117_tc_294 sowards v commissioner tcmemo_2003_180 even if sec_7491 were applicable petitioner has failed to establish that he satisfied the requirements of sec_7491 to show that he completed any of the claimed exchanges for the reasons set forth below we agree with respondent sec_1001 provides that except as otherwise provided in subtitle a of title_26 covering income taxes the entire amount of the gain_or_loss on the sale_or_exchange of property shall be recognized one exception is sec_1031 which provides generally that no gain_or_loss shall be recognized on the exchange of property held for productive use in a trade_or_business or for investment if such property is exchanged solely for property of like_kind which is to be held either for productive use in a trade_or_business or for investment such an exchange need not be simultaneous so long as the property to be received by the taxpayer is identified within days after the taxpayer transfers the property relinquished in the exchange and the identified property is received by the taxpayer within days after the transfer of the relinquished_property or by the due_date of the taxpayer’s return for the taxable_year of the transfer of the relinquished_property whichever is earlier sec_1031 pursuant to the regulations issued under sec_1031 a qualified_intermediary with which the taxpayer has entered into an exchange_agreement may be used to facilitate a nonsimultaneous_exchange of property see sec_1_1031_k_-1 income_tax regs after indicating in his pretrial memorandum that he intended to call numerous witnesses including petitioner petitioner’s counsel opted on the eve of trial to submit this case under rule to be decided solely on the basis of various stipulated documents and a proffered third-party affidavit which the court ruled was inadmissible hearsay the documents on which petitioner relies to establish that property exchanges occurred that give rise to nonrecognition of gain under sec_1031 are incomplete and contain significant discrepancies petitioner’s testimony and that of third-party witnesses familiar with the transactions might have addressed the gaps and discrepancies in the documents but this testimony would also have been subject_to cross- examination in these circumstances the failure to call petitioner or any other witness familiar with these transactions and documents gives rise to an inference that any such testimony would be unfavorable see 6_tc_1158 aff’d 162_f2d_513 10th cir after a careful review of the documents we conclude as more fully discussed below that petitioner has failed to establish that he received like-kind_property in exchange for the third avenue montclair and las palmas properties that he transferred during the years in issue b third avenue property with respect to the third avenue property petitioner contends that the third avenue mineral contract that he executed to acquire a interest in the rankin unit coupled with the third avenue substitution wherein cltc assumed his rights and obligations under the third avenue mineral contract demonstrates in the light of certain other supporting documents that petitioner exchanged the third avenue property for a interest in the rankin unit using cltc as a qualified_intermediary because of the numerous discrepancies and omissions in the documentation and reporting of the transaction we disagree first petitioner claims that the dollar_figure held in his exchange account by cltc as proceeds from the sale of the third avenue property was remitted to hnc as part of the consideration for the interest in rankin unit the evidence of such a funds transfer consists of two typewritten documents each purporting to be petitioner’s authorization of a bank wire of dollar_figure to hnc one dated date and the other dated date petitioner offers no explanation of why there are two versions of the purported bank wire even if it is assumed that the later bank wire somehow substituted for the first the purported bank wire documents raise other suspicions for example petitioner has offered no explanation of why he wired the funds himself since the dollar_figure in proceeds from the sale of the third avenue property was according to other documentation in cltc’s hands and cltc was obligated pursuant to the third avenue substitution to make the wire transfer of dollar_figure to hnc the wire transfer documents invite further suspicion while the account number of the transferee is listed none is given for the transferor there is no evidence from bank records of either petitioner or hnc that any such wire transfer ever occurred nor are there any hnc records showing amounts due and or paid for the sale of a interest in the rankin unit there are other problems with the consideration involved in the transaction on his return petitioner reported that he assumed a dollar_figure mortgage on the interest in the rankin unit he received in exchange for the third avenue property yet he offered no evidence of any such mortgage in this proceeding even if one assumes that the purported wire transfer of dollar_figure was made to hnc and the dollar_figure promissory note from the third avenue property buyer was assigned to it there is no evidence that the balance of the purported dollar_figure purchase_price of the rankin unit interest was ever paid in addition there is no evidence that hnc’s assignment to petitioner of a interest in the rankin unit was ever recorded reinforcing the doubt that he actually acquired such an interest finally petitioner reported no income or expenses with respect to any interest in an oil and or mineral_property on his or return a fact which is difficult to reconcile with his contention that he acquired a interest in the rankin unit in in exchange for the third avenue property the cumulative impact of the foregoing discrepancies persuades us that petitioner has failed to establish that he completed an acquisition of a interest in the rankin unit in exchange for the third avenue property c montclair property for similar reasons we reach the same conclusion with respect to the purported exchange of the montclair property in contrast to the third avenue property transaction there is no evidence such as a purported bank wire that the initial remittance of dollar_figure due to hnc under the montclair mineral contract was ever paid--by petitioner cltc or any other person while the montclair mineral contract executed on date provided that petitioner hereby pays hnc a deposit of dollar_figure the montclair substitution executed eight days later on date indicates that cltc was to make a payment in the same amount to hnc strongly suggesting that the payment had not as yet been made as of that date inviting further skepticism hnc’s assignment of the interest in the rankin unit was made effective date--a date which precedes the date on which cltc was purportedly obligated under the montclair substitution to pay the initial consideration of dollar_figure we believe it unlikely that hnc would assign away a valuable mineral_interest before receiving the agreed-upon consideration also as with the purported assignment of the first interest in the rankin unit in connection with the third avenue transaction there is no evidence that the assignment of the rankin unit interest purportedly made in connection with the montclair transaction was ever recorded casting further doubt on the conclusion that petitioner completed any acquisition of the second interest in the rankin unit more problematically there is no evidence that cltc actually executed the montclair substitution the copy in the record is not signed on cltc’s behalf by any person but only by petitioner and an hnc representative given the foregoing discrepancies cltc’s apparent failure to execute the montclair substitution and the absence of any other evidence that the purported consideration of dollar_figure was paid we find that it was not as in the case of the third avenue transaction there are additional problems with the consideration purportedly paid for the second interest in the rankin unit in the montclair transaction on his return petitioner reported that he assumed a dollar_figure mortgage on the interest in the rankin unit he received in exchange for the montclair property yet he offered no evidence of any such mortgage in this proceeding also similar to the third avenue transaction even if one assumes the initial dollar_figure payment was made to hnc and the dollar_figure promissory note from the montclair property buyer was assigned to it there is no evidence that the balance of the purported dollar_figure purchase_price of petitioner’s second interest the rankin unit was ever paid in addition there is no evidence that hnc’s purported assignment to petitioner of an additional interest in the rankin unit was ever recorded reinforcing the doubt that he actually acquired such an interest we also observe that petitioner purportedly acquired the two interests in the rankin unit one month apart--yet the first was priced at dollar_figure and the second at dollar_figure excluding the equipment purchased petitioner offers no explanation of the significant price difference while the third avenue mineral contract contained a buyback clause that is absent from the montclair mineral contract there is no explanation concerning whether and to what extent that provision might account for any of the price difference on balance we are persuaded that the price difference absent any effort at an explanation also casts doubt on whether either acquisition occurred finally petitioner reported no income or expenses with respect to any interest in an oil and or mineral_property on his or return a fact which is difficult to reconcile with his contention that he acquired a second interest in the rankin unit in in exchange for the montclair property as with the third avenue transaction the cumulative impact of the discrepancies persuades us that petitioner has failed to establish that he completed an acquisition of a second interest in the rankin unit in exchange for the montclair propertydollar_figure d las palmas property the purported exchange transaction covering the las palmas property warrants less discussion although petitioner claimed that the gain realized upon the transfer of the las palmas property was subject_to nonrecognition treatment under sec_1031 on his return the property received in exchange for the las palmas property was not identified in this proceeding petitioner proffered a date contract that he 18petitioner points to six memoranda in the record discussing rankin unit s and or rankin field matters dated from april through date as evidence that he acquired interests in the rankin unit as claimed the first five memos do not contain petitioner’s name and there is no evidence of the circumstances or capacity in which he obtained them they do not persuade us that petitioner acquired the interests he claims the last memo names petitioner among others as a recipient but there is no indication of the capacity in which he received the memorandum thus at most the memorandum establishes that petitioner had some relationship with the rankin unit or rankin field but it does not persuade us that he acquired a cumulative interest in the rankin unit or the vicksburg zone thereof as a result of the property exchanges he contends occurred entered into with cltc under which cltc agreed to act as his intermediary to facilitate an exchange of the las palmas property also in the record is the las palmas mineral contract dated date which similar to the other two mineral contracts with hnc provided for petitioner’s purchase from hnc of the oil and mineral rights of the vicksburg zone of the rankin unit likewise there is a substitution agreement the las palmas substitution dated date which substitutes cltc for petitioner with respect to the las palmas mineral contract thereafter the evidence evaporates there is no evidence that hnc received any of the consideration called for in the las palmas mineral contract that hnc made an assignment to petitioner or cltc of any interest in the vicksburg zone of the rankin unit or that an assignment of this nature was ever recorded in sum there is a total failure of proof that petitioner completed an acquisition of an interest in the vicksburg zone of the rankin unitdollar_figure the fact that petitioner has steadfastly maintained that he did so in the face of this failure of proof 19in this regard we note that the record contains a copy of the deed_of_trust securing a dollar_figure promissory note to petitioner from the purchasers of the las palmas property which deed_of_trust had been recorded but no evidence that the deed or note was ever assigned to hnc 20we note also that petitioner did not report any income or expenses from an oil and or mineral_property on his or return a fact which is difficult to reconcile with his contention that he acquired an interest in the vicksburg zone in in exchange for the las palmas property or of any explanation of the absence of documentation damages his credibility with respect to the claims advanced for the other two transactions e conclusion we find that petitioner has failed to establish that he acquired like-kind_property in exchange for the third avenue property he transferred in or the montclair and las palmas properties he transferred in as petitioner has offered no other grounds for nonrecognition of the gains realized on those transactions we sustain respondent’s determinations that he had capital_gains of dollar_figure for and dollar_figure for dollar_figure iii additions to tax and penalties respondent determined that petitioner is liable for additions to tax under sec_6651 for failure to timely file returns for and as petitioner has stipulated that the returns for the foregoing years were all filed in and has not contended he had reasonable_cause or otherwise addressed the additions specifically we sustain them see rule b respondent also determined that petitioner is liable for accuracy-related_penalties under sec_6662 for and on the basis that the 21petitioner has not challenged respondent’s computation of the amounts realized upon petitioner’s disposition of the three properties at issue underpayments for those years which we have sustained are attributable to negligence or disregard of rules or regulations under sec_6662 and or to substantial understatements of income_tax under sec_6662 for purposes of the accuracy-related_penalty negligence includes any failure to make a reasonable effort to comply with the code and disregard includes any careless reckless or intentional disregard sec_6662 negligence for this purpose also includes a taxpayer’s failure to keep adequate books_and_records or to substantiate items properly sec_1_6662-3 proced admin regs the accuracy-related_penalty does not apply to any portion of an underpayment if the taxpayer shows that there was reasonable_cause for and that he acted in good_faith with respect to such portion sec_6664 petitioner bears the burden of proving that he is not liable for the accuracy- related penalty see rule a 503_us_79 welch v helvering u s pincite 85_tc_934 dollar_figure as previously discussed petitioner failed in very significant sec_7491 which imposes the burden of production on the commissioner with respect to a taxpayer’s liability for any penalty is inapplicable in this proceeding because as previously discussed the examination for the years at issue commenced before date see rra sec a respects to substantiate that he effected exchanges of the third avenue montclair and las palmas properties for like-kind properties as provided in sec_1031 notwithstanding his position in returns for and that like- kind exchanges of those properties occurred petitioner did not even contest the other adjustments for those years or for see eg 19_tc_350 accordingly his negligence with respect to the underpayments for and is clear petitioner’s sole argument with respect to the accuracy-related_penalties determined is that sufficient information was disclosed on the returns presumably petitioner is asserting the sec_6662 defense of disclosure which if satisfied would apply only with respect to any penalty premised on a substantial_understatement_of_income_tax because we conclude that the underpayments for and are attributable to negligence it is unnecessary for us to consider whether they are also attributable to substantial understatements including petitioner’s challenge to that proposition consequently we sustain the accuracy-related_penalties determined for and iv conclusion we have considered all the remaining arguments made by petitioner for results contrary to those reached herein to the extent not discussed we conclude those arguments are moot without merit or unnecessary to reach to reflect the foregoing decision will be entered for respondent


internal_revenue_service department of the treasury number release date index number u i l no washington dc person to contact telephone number refer reply to cc psi plr-140486-01 date date legend company state shareholders a dear this letter responds to a letter received date and additional submission requesting a ruling on behalf of company under sec_1362 of the internal_revenue_code the information submitted discloses that company was incorporated on a in state company has two shareholders shareholders it is represented that company has intended to be an s_corporation since a however company discovered that its s election had not been timely filed company requests a ruling under sec_1362 that its sec_1362 election will be treated as timely made for its taxable_year that began on a sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides when an s election will be effective generally if an s election is made within the first two and one half months of a corporation's taxable_year plr-140486-01 then that corporation will be treated as an s_corporation for the year in which the election is made sec_1362 provides that if an s election is made after the first two and one half months of a corporation’s taxable_year then that corporation will not be treated as an s_corporation until the taxable_year following the year in which the s election is made sec_1362 provides that if no sec_1362 election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply based on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make a timely s election for its taxable_year that began on a accordingly we conclude that company's sec_1362 election will be treated as timely made for its taxable_year that began on a however this ruling is contingent on company filing form_2553 election by a small_business_corporation with an effective date of a with the appropriate service_center within days from the date of this ruling a copy of this letter should be attached to the form_2553 except as specifically set forth above we express or imply no opinion concerning the federal tax consequences of the foregoing facts specifically we express or imply no opinion on whether company otherwise qualifies as an s_corporation under a power_of_attorney on file with this office a copy of this letter is being sent to company’s authorized representative this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours jeanne sullivan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


t c memo united_states tax_court timothy harvey petitioner v commissioner of internal revenue respondent docket no filed date timothy harvey pro_se amy dyar seals for respondent memorandum opinion dawson judge this case was assigned to chief special_trial_judge peter j panuthos pursuant to the provisions of sec_7443a and rule sec_180 sec_181 and sec_183 the court agrees with and adopts the opinion of the special_trial_judge which is set forth below opinion of the special_trial_judge panuthos chief special_trial_judge in a notice_of_deficiency dated date respondent determined a deficiency in and additions to petitioner's federal_income_tax for the taxable_year as follows addition_to_tax deficiency sec_6651 sec_6654 dollar_figure dollar_figure dollar_figure respondent determined that petitioner failed to file a return for the taxable_year the notice_of_deficiency included the following adjustments of omitted income name of payor kind of payment amount nbd mortgage co real_estate sales dollar_figure e d jones co daily passport cash tst dividends achievers unlimited nonemployee compensation fidelity service co ira distribution fidelity service co ira distribution big_number a timely petition was filed in response to the notice_of_deficiency in the petition petitioner alleged that in response to internal_revenue_service irs inquiries he had all section references are to the internal_revenue_code in effect for the year in issue unless otherwise indicated all rule references are to the tax_court rules_of_practice and procedure written a letter to a representative of the irs advising that if he did not hear from the irs within days as to the authority requiring him to file a federal_income_tax return he would consider the matter closed the irs not having responded petitioner asserts that he is not required to do anything more petitioner also included substantial tax_protester rhetoric in the petition petitioner requested and was granted small_tax_case status pursuant to sec_7463 and rule at the time of filing the petition herein petitioner resided at naples florida on date respondent lodged an answer with the court asserting an increased deficiency and increased additions to tax respondent also filed a motion to remove the small_tax_case designation in the answer respondent asserted that petitioner as the sole_proprietor of staying young unlimited received commission income from matol botanical international ltd matol in the amount of dollar_figure thus respondent claimed an increased deficiency for in the amount of dollar_figure including self-employment_tax and increased additions to tax under sec_6651 and sec_6654 in the amounts of dollar_figure and dollar_figure respectively the basis for respondent's motion to remove the small_tax_case designation was that upon the filing of respondent's answer the case no longer qualified for small tax designation because the amount in dispute exceeded dollar_figure after notice and hearing the court granted respondent's motion to remove small_tax_case designation and respondent's answer was filed on date by notice dated date petitioner was notified that this case was set for trial at a trial session of the court in tampa florida beginning date a standing pre-trial order was also served on petitioner on the same date the notice clearly states among other things that your failure to appear may result in dismissal of the case and entry of decision against you on date petitioner filed a motion to withdraw the petition petitioner informed the court that he was giving the court notice of his withdrawal of the petition by order dated date the court denied petitioner's motion citing 57_tc_720 by order dated date the court set this matter for trial at a time and date certain of monday date pincite p m when the matter was called at the calendar call on the morning of date and again sometime after p m on the same date respondent appeared and announced ready for trial there was no appearance by or on behalf of petitioner there being no appearance by or on behalf of petitioner respondent filed with the court a motion to dismiss for failure to prosecute as to the deficiency and additions to tax determined in the notice_of_deficiency respondent also filed a motion for a penalty under sec_6673 asserting that petitioner had instituted this proceeding primarily for the purpose of delay and that petitioner's position is frivolous or groundless respondent also presented evidence through testimony of witnesses and documents to satisfy the burden_of_proof with respect to the increased deficiency and increased additions to tax we shall first consider respondent's motion to dismiss then review the record with respect to the claim for an increased deficiency and additions to tax and finally consider the claim for a penalty under sec_6673 dismissal our rules provide that the failure of a party to appear at trial or to properly prosecute may result in entry of decision against that party specifically rule which is entitled default and dismissal provides in pertinent part as follows b dismissal for failure of a petitioner properly to prosecute or to comply with these rules or any order of the court or for other cause which the court deems sufficient the court may dismiss a case at any time and enter a decision against the petitioner the court may for similar reasons decide against any party any issue as to which such party has the burden_of_proof additionally rule which is entitled failure to appear or to adduce evidence provides in pertinent part as follows a attendance at trials the unexcused absence of a party when a case is called for trial will not be ground for delay the case may be dismissed for failure properly to prosecute or the trial may proceed and the case be regarded as submitted on the part of the absent party or parties b failure of proof failure to produce evidence in support of an issue of fact as to which a party has the burden_of_proof and which has not been conceded by such party's adversary may be ground for dismissal or for determination of the affected issue against that party dismissal of a case is a sanction that rests with the discretion of the court 99_tc_533 87_tc_794 in addition-- dismissal may properly be granted where the party's failure to comply with rules and orders of the court is due to willfulness bad faith or any fault as contrasted with mere inadvertence or inability 357_us_197 fed r civ p b 82_tc_592 rule c a case may be dismissed for failure properly to prosecute when petitioner fails to appear at trial and does not otherwise participate in the resolution of petitioner's claim 86_tc_110 harper v commissioner supra pincite bixler v commissioner tcmemo_1996_329 kline v commissioner tcmemo_1996_220 petitioner did not appear for the calendar call or at the time at which his case was set for trial nor did petitioner communicate with the court upon his failure to appear accordingly we shall grant respondent's motion to dismiss for failure to properly prosecute and sustain respondent's determination as to the deficiency and the additions to tax determined in the notice_of_deficiency see eg 91_tc_1049 affd 926_f2d_1470 6th cir increased deficiency and additions to tax with respect to the increased deficiencies and increased additions to tax claimed in the answer respondent bears the burden_of_proof rule a 77_tc_881 desantis v commissioner tcmemo_1997_ respondent presented evidence in support of the claim in date petitioner executed an application and agreement to become an independent distributor for matol in date petitioner submitted an application_for registration of a fictitious name staying young unlimited with the division of corporations state of florida the registration documents reflect that the mailing address of the business is the same as that of petitioner's residence about the same time petitioner advised matol of the name change and asked matol to issue all compensation and royalty checks in the name of staying young unlimited petitioner further advised matol that staying young unlimited had its own tax identification_number during the taxable_year matol as payor issued checks in the name of staying young unlimited totaling dollar_figure the checks were deposited to an account controlled by petitioner at the barnett bank in florida the dollar_figure represents commissions earned by petitioner from a network marketing system operated by matol petitioner failed to file a federal_income_tax return for the taxable_year and he failed to report any income or deductions for that year petitioner also failed to pay estimated_tax as required by the internal_revenue_code gross_income includes all income derived from any sources whatsoever unless specifically excluded by another provision of the internal_revenue_code sec_61 348_us_426 it is clear that commission income is taxable_income there is nothing in this record which would indicate that petitioner did not receive commission income during in the amounts claimed by respondent the evidence in the record that petitioner did receive such income is sufficient to carry respondent's burden_of_proof in that regard sec_1401 imposes a tax on self-employment_income sec_1402 defines net_earnings_from_self-employment as gross_income derived from a trade_or_business petitioner did not appear at trial or present any information or evidence that the commissions received were not self-employment_income the evidence adduced by respondent establishes that these commissions were income from self-employment accordingly we conclude that petitioner is liable for the self-employment_tax sec_6651 imposes an addition_to_tax for failure_to_file a timely return the addition_to_tax will not apply if the failure_to_file was not due to willful neglect and there was reasonable_cause for the failure_to_file 469_us_241 petitioner received substantial amounts of income during the taxable_year and he did not file a federal_income_tax return the evidence in this record persuades us that there was no reasonable_cause for the failure_to_file therefore we conclude that petitioner is liable for the addition_to_tax as claimed by respondent in the answer sec_6654 imposes an addition_to_tax for failure to pay estimated_tax the addition_to_tax is mandatory and does not contain a provision relating to reasonable_cause or willful neglect 99_tc_202 91_tc_874 petitioner did not pay an estimated_tax despite the receipt of substantial amounts of commission income we conclude that petitioner is liable for the addition_to_tax as asserted by respondent in the answer accordingly we conclude that petitioner is liable for the increased deficiency and increased additions to tax for the taxable_year asserted by respondent in the answer penalty under sec_6673 petitioner is the same person who filed a petition in docket no in response to a notice_of_deficiency issued for the taxable years and in that case the commissioner determined and asserted among other adjustments that petitioner received commission income from matol which payments were a notice_of_deficiency for the taxable years and was also issued to petitioner's wife kathleen harvey she filed a petition at docket no and that docket was ultimately consolidated with docket no deposited to his sole_proprietorship staying young unlimited the commissioner also determined that petitioner failed to report income on federal_income_tax returns for the taxable years and in his petition in that case petitioner asserted that the notice_of_deficiency was invalid respondent's determination was unconstitutional and the amounts received were not income on date pursuant to rule b petitioner was served with a copy of the court's oral findings_of_fact and opinion the court concluded that the commissioner's determination was correct with respect to the deficiency and additions to tax for and also the court held in favor of the commissioner with respect to claimed increased deficiencies and additions to tax sec_6673 authorizes the tax_court to require a taxpayer to pay to the united_states a penalty not in excess of dollar_figure whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless petitioner did not file a federal_income_tax return for the taxable_year he received substantial income during the year in issue petitioner filed a petition with respect to the and tax years and the court concluded in that case that petitioner was liable for deficiencies for omitted income as well as additions to tax for failure_to_file a return and failure to pay estimated_tax despite the court's holding for the tax years and in an opinion served on the parties on date petitioner filed a petition in the instant case on date making many of the same claims as he did in the earlier case this court and other federal courts have consistently and uniformly held for many years that compensation is income e g 793_f2d_139 6th cir affg per curiam 82_tc_766 791_f2d_68 7th cir 784_f2d_1006 9th cir 760_f2d_1003 9th cir 737_f2d_439 5th cir 733_f2d_709 9th cir 687_f2d_264 8th cir affg tcmemo_1981_506 661_f2d_71 5th cir affg tcmemo_1981_122 640_f2d_1014 9th cir petitioner's arguments are basic tax_protester rhetoric as the court_of_appeals for the fifth circuit has remarked we perceive no need to refute these arguments with somber reasoning and copious citation of precedent to do so might suggest that these arguments have some colorable merit 737_f2d_1417 5th cir the record in this case convinces us that petitioner was not interested in disputing the merits of either the deficiencies in income taxes or the additions to tax rather the record demonstrates that petitioner regards this case as a vehicle to protest the tax laws of this country and espouse his own misguided views we are also convinced that petitioner instituted and maintained this proceeding primarily if not exclusively for purposes of delay having to deal with this matter wasted the court's time as well as respondent's moreover taxpayers with genuine controversies may have been delayed accordingly we shall grant respondent's motion and pursuant to sec_6673 require petitioner to pay a penalty to the united_states in the amount of dollar_figure coleman v commissioner supra pincite crain v commissioner supra pincite8 coulter v commissioner 82_tc_580 82_tc_403 to reflect the foregoing an order granting respondent's motions and decision will be entered