t c memo united_states tax_court emily t nichols petitioner v commissioner of internal revenue respondent docket no filed date john f hernandez for petitioner nancy l karsh 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 section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure - - 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 this case is before the court on respondent’s motion to dismiss for lack of jurisdiction respondent contends that the petition was not timely filed and therefore the case should be dismissed for lack of jurisdiction as we discuss in greater detail below we shall grant respondent’s motion to dismiss background respondent issued a notice_of_deficiency dated date to petitioner and her deceased husband pericles g nichols determining a deficiency in their federal_income_tax for the tax_year of dollar_figure and an addition_to_tax under sec_6662 of dollar_figure on date respondent mailed the notice_of_deficiency to pericles g nichols decd and emily t nichols w broadview drive bay harbor island florida the bay harbor island address the bay harbor island address was the address where petitioner resided in and the notice_of_deficiency mailed to the bay harbor island address was returned to respondent unopened and marked as return to sender the reason checked for being returned undelivered is itself illegible the envelope in which the notice_of_deficiency was mailed to the bay harbor island address - - bears the handwritten and encircled word deceased it is not clear from the record who wrote deceased or when it was written also the u s postal service form_3811 attached to the envelope in which the notice_of_deficiency was mailed reflects an illegible and crossed out signature on the line marked as signature agent on the same date respondent mailed a duplicate notice_of_deficiency to pericles g nichols decd and emily t nichols p o box palm beach florida the palm beach address the notice_of_deficiency mailed to the palm beach address was returned to respondent unopened and marked as forwarding order expired on date respondent mailed a notice_of_deficiency for the tax_year to pericles g nichols decd and emily t nichols ponce de leon boulevard coral gables florida the coral gables address the notice_of_deficiency dated date was mailed to the coral gables address and was otherwise identical to the notices mailed on date respondent explained that upon receipt of the returned notices of deficiency mailed on date he became aware that petitioner did not receive either of the duplicate notices of deficiency and decided to mail the notice_of_deficiency for the tax_year to an additional address this notice_of_deficiency was returned to respondent unopened marked as return q4e- to sender and the reason checked is attempted not known pericles g nichols died sometime between the date when the tax_return was filed and the notices of deficiency were mailed on date respondent was aware of pericles g nichols’s death prior to the mailing of the notices of deficiency on date on date petitioner filed a petition for redetermination with the court petitioner resided in bay harbor island florida at the time she filed her petition attached to the petition is a copy of the notice_of_deficiency mailed to the palm beach address the parties have stipulated that petitioner’s last_known_address at all times relevant to the matter at hand was the bay harbor island address respondent filed a motion to dismiss for lack of jurisdiction respondent contends that this case must be dismissed for lack of jurisdiction on the ground that the petition was not filed within the 90-day period prescribed in sec_6213 petitioner filed an objection to respondent’s motion to dismiss petitioner contends that the issuance of the notice_of_deficiency to the coral gables address on date acted to rescind withdraw or otherwise invalidate the duplicate notices of deficiency dated and mailed on date respondent contends that a notice_of_deficiency was issued to petitioner’s last_known_address the bay harbor island - - address on date and this satisfies the requirements of sec_6213 respondent asserts that the mailing of another notice_of_deficiency for the same tax_year with a new date does not invalidate the prior valid notice_of_deficiency discussion this court’s jurisdiction to redetermine a deficiency depends upon the issuance of a valid notice_of_deficiency and a timely filed petition rule a c 93_tc_22 sec_6212 expressly authorizes respondent after determining a deficiency to send a notice_of_deficiency to the taxpayer by certified or registered mail it is sufficient for jurisdictional purposes if respondent mails the notice_of_deficiency to the taxpayer’s last_known_address sec_6212 frieling v commissioner 1t c if a deficiency_notice is mailed to the taxpayer’s last_known_address actual receipt of the notice is immaterial 857_f2d_676 9th cir affg 88_tc_1042 a misaddressed notice_of_deficiency that is returned to the commissioner undelivered is null and void 769_f2d_1376 9th cir affg tcmemo_1984_98 the taxpayer generally ha sec_90 days from the date the notice_of_deficiency is mailed to file a petition in this court for a redetermination of the deficiency sec_6213 -- - there is no question that the petition was not timely filed and that we lack jurisdiction over the petition filed herein we must decide however whether the matter should be dismissed against respondent because the notice_of_deficiency was invalid or rescinded or against petitioner because the petition was in response to a valid notice_of_deficiency but was untimely 92_tc_729 affd without published opinion 935_f2d_1282 3d cir see also mollet v commissioner 757_f2d_286 11th cir affg 82_tc_618 a taxpayer to whom a notice_of_deficiency has been properly mailed cannot defeat actual notice by deliberately refusing delivery of the notice_of_deficiency 55_f3d_216 6th cir affg tcmemo_1993_143 114_tc_604 sec_6212 authorizes the commissioner with the consent of the taxpayer to rescind any notice_of_deficiency mailed to the taxpayer if a notice_of_deficiency is rescinded the taxpayer has no right to file a petition with the court based on such a notice hanashiro v commissioner tcmemo_1999_78 powell v commissioner tcmemo_1998_108 no statutory provision specifically addresses whether respondent may unilaterally abandon or withdraw a notice_of_deficiency or the - effect of such an abandonment or withdrawal mitteldorfer straus inc v commissioner tcmemo_1979_503 citing 29_bta_150 holter v commissioner tcmemo_1978_411 petitioner agrees that in and her last_known_address was the bay harbor island address we conclude that the notice_of_deficiency that was mailed to the bay harbor island address on date was properly mailed to petitioner’s last_known_address she has not argued and there are no facts in the record that would indicate that the u s postal service mishandled the notice_of_deficiency mailed to the bay harbor island address in fact petitioner’s counsel explained to the court that pericles g nichols died sometime before the date notice_of_deficiency was mailed to the bay harbor island address and that during this time petitioner had received a great volume of mail and she wasn’t paying attention to everything that was going on it seems more_likely_than_not that the notice_of_deficiency sent to petitioner’s last_known_address was returned undelivered because of petitioner’s refusal of delivery as such respondent has done all he could reasonably do to provide notice to petitioner 87_f3d_273 9th cir affg tcmemo_1994_ patmon young profl corp v commissioner supra pincite there is no indication in the record that respondent --- - intended to rescind or that petitioner consented to rescission of the notice_of_deficiency mailed to the bay harbor island address also there is no evidence that respondent withdrew or otherwise caused the notice_of_deficiency mailed to the bay harbor island address to be invalidated the issuance of the notice_of_deficiency on date is of no consequence because it was not mailed to petitioner’s last_known_address and was not received to reflect the foregoing an order will be entered qranting respondent’s motion to dismiss for lack of jurisdiction


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 intl b06 plr-106882-15 date may ty ------ legend ------------------- taxpayer accounting firm ---------------------------------- ---------------------------------- law firm company ---------------------- -------------------- individual a ---------------------------- individual b individual c ----------------- ------- year ----------------------- date date --------------------- dear ---------------- this responds to a letter dated date submitted by taxpayer requesting that the internal_revenue_service service grant taxpayer an extension of time under sec_301_9100-1 and sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc for taxpayer’s first taxable_year the ruling contained in this letter is based upon information and representations submitted by taxpayer and law firm and accompanied by affidavits and penalty of perjury statements executed by appropriate parties this office has not verified any of the materials submitted in support of the request for a ruling it is subject_to verification on examination plr-106882-15 facts taxpayer is a domestic_corporation wholly owned by individuals a b and c taxpayer was formed on date for the sole purpose of operating as an interest charge domestic_international_sales_corporation ic-disc taxpayer operates under a commission arrangement with company individuals a b and c also own all of the outstanding_stock of company in year individuals a b and c consulted with accounting firm and decided to establish an ic-disc individuals a b and c engaged law firm to complete the necessary organizational documents taxpayer began operating as an ic-disc on date however due to a misunderstanding between accounting firm and law firm regarding the responsibility for preparing and submitting form 4876-a taxpayer did not timely file its election to qualify as an ic-disc for its first taxable_year taxpayer did not realize this error until date when accounting firm discovered that taxpayer’s form 4876-a had not been filed in order to operate as an ic-disc beginning on date taxpayer requested a ruling granting an extension of time to file form 4876-a for its first taxable_year law and analysis sec_992 of the internal_revenue_code the code provides that an election by a corporation to be treated as a disc1 shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 of the code provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temporary sec_1_921-1t provides in part that a corporation electing ic-disc status must file form 4876-a and that a corporation electing to be treated as an ic-disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a as used in this letter the terms ic-disc and disc have the same meaning plr-106882-15 revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interests of the government based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is granted an extension of time of days from the date of this ruling letter to file form 4876-a such filing will be treated as a timely election to be treated as an ic-disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim ic-disc status or benefits see sec_301_9100-1 taxpayer should attach a copy of this ruling letter to its form 4876-a and federal_income_tax return for the taxable years to which this letter applies 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 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 accordance with the power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative sincerely _____________________________________ joseph p dewald senior technical reviewer branch office of associate chief_counsel international enclosures copy of this letter copy for sec_6110 purposes cc


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 ita b07 plr-141605-12 date date re request for private ruling under sec_168 ------------------------------------------------------------------ -------------- --------------------------- ------------------- ----------------------------------------------------------------- ------------------------------------------------------------------ -- --- ---------------- legend taxpayer state date city a b c d location dear ------------ this letter responds to a letter dated date and subsequent correspondence submitted on behalf of taxpayer requesting a ruling under sec_168 of the internal_revenue_code taxpayer represents that the facts are as follows taxpayer is a state limited_liability_company taxpayer was formed on date taxpayer’s principal_place_of_business is city it uses the accrual_method of accounting and has a calendar_year end taxpayer has two members a a state corporation holds a d percent interest in taxpayer and b a state corporation holds a c percent plr-141605-12 interest in taxpayer and is the managing member of taxpayer each of a and b are domestic corporations neither of which has an election in effect under sec_936 taxpayer has not elected to be treated as an association_taxable_as_a_corporation pursuant to sec_301_7701-3 of the income_tax regulations and thus is treated as a partnership for federal_income_tax purposes taxpayer is engaged principally in the business of developing a solar project that will be located in location the project the project will include tangible_property that will be subject_to a depreciation allowance pursuant to sec_168 the depreciable_property the depreciable_property will be used predominantly in location none of the depreciable_property will be either tax-exempt_use_property or tax- exempt bond financed property as such terms are defined in sec_168 none of the depreciable_property will be imported_property covered by an executive_order under sec_168 taxpayer will not make an election pursuant to sec_168 to depreciate any of the depreciable_property under the alternative_depreciation_system of sec_168 ruling requested taxpayer requests a ruling that during such time that i the depreciable_property is owned by the taxpayer ii taxpayer is comprised solely of u s_corporations excluding corporations which have an election in effect under sec_936 or u s citizens who are not entitled to the benefits of sec_931 or sec_933 and iii the depreciable_property is used in location the depreciable_property will qualify for the exception under sec_168 and accordingly will not be treated as property that is used predominately outside the united_states law and analysis sec_168 provides that any tangible_property used predominantly outside the united_states during the taxable_year must be determined under the alternative_depreciation_system of sec_168 sec_168 lists exceptions to sec_168 for certain property used outside the united_states sec_168 provides that property will not be treated as used predominantly outside the united_states if the property is owned by a domestic_corporation other than a corporation which has an election in effect under sec_936 or by a united_states citizen other than a citizen entitled to the benefits of sec_931 or sec_933 and which is used predominantly in a possession_of_the_united_states by such a corporation or such a citizen or by a corporation created or organized in or under the law of a possession_of_the_united_states plr-141605-12 the background of sec_168 provides insight in determining whether sec_168 applies to domestic partnerships where all of the partners are domestic corporations none of which has an election in effect under sec_936 or united_states citizens none of whom is entitled to the benefits of sec_931 or sec_933 the rules in sec_168 are derived from former sec_48 prior to sec_168 provided in relevant part that for purposes of sec_168 rules similar to the rules under sec_48 including the exceptions contained in sec_48 shall apply in determining whether property is used predominantly outside the united_states when former sec_48 was repealed as a deadwood provision in sec_168 was amended to incorporate the enumerated exceptions contained in former sec_48 see of the omnibus budget reconciliation act of publaw_101_508 the act the language of sec_168 is the same as the language in former sec_48 prior to its repeal in the senate_finance_committee stated the following comment in relevant part on the reason for the enactment of former sec_48 your committee’s amendment extends the application of the investment_credit provision to property used in a possession by a u_s_person or by a corporation organized in a possession provided the property would otherwise have qualified for the investment_credit this rule is not extended if the property is owned or used in the possession by u s persons who are presently exempt from u s tax due to the application of the special provisions of the code which exempt u s persons who derive substantially_all of their income from a u s possession sec_931 sec_932 sec_933 sec_934 s rep no 89th cong 2d sess 1966_2_cb_1100 based on this senate report it appears that congress intended former sec_48 to apply to united_states persons even though the literal language of former sec_48 applied to united_states citizens or domestic corporations when former sec_48 was enacted in the term united_states_person was defined under sec_7701 of the code as meaning a a citizen or resident_of_the_united_states b a domestic_partnership c a domestic_corporation and d any estate_or_trust other than a foreign_estate or foreign_trust within the meaning of sec_7701 of the code similar to former sec_48 the literal wording of sec_168 applies to domestic corporations or united_states citizens but not to domestic partnerships however the repeal of the deadwood provisions and the amendment to sec_168 by of the act were not intended to be substantive changes in the tax law h_r rep no 101st cong 2d sess date sec_7701 defines the term united_states_person as a a citizen or resident_of_the_united_states b a domestic_partnership c a domestic_corporation d plr-141605-12 any estate other than a foreign_estate within the meaning of sec_7701 and e any trust if a court within the united_states is able to exercise primary supervision over the administration of the trust and one or more united_states persons have the authority to control all substantial decisions of the trust in light of the legislative_history of sec_168 and former sec_48 we believe that sec_168 is intended to apply to a domestic_partnership where all of its partners are domestic corporations that do not have an election in effect under sec_936 or are united_states citizens that are not entitled to the benefits of sec_931 or sec_933 conclusion in this case taxpayer represents that the project which includes the depreciable_property will be located in and used predominantly in location which is a possession_of_the_united_states taxpayer also represents that taxpayer is a state limited_liability_company that is treated as a partnership for federal_income_tax purposes taxpayer has two members a and b each of which is a domestic_corporation neither a nor b has an election in effect under sec_936 and taxpayer is the sole owner of the depreciable_property for federal_income_tax purposes based solely on taxpayer’s representations and the relevant law and analysis set forth above we conclude that provided taxpayer is a domestic_partnership where all of its partners are domestic corporations other than a corporation which has an election in effect under sec_936 or are united_states citizens that are not entitled to the benefits of sec_931 or sec_933 the depreciable_property is property described in sec_168 and thus the depreciable_property will not be treated as property that is used predominantly outside the united_states within the meaning of sec_168 except as specifically set forth above no opinion is expressed or implied concerning the tax consequences of the facts described above under any other provisions of the code including subsections of sec_168 other than sec_168 further no opinion is expressed or implied concerning the tax consequences of future ownership changes of taxpayer under sec_168 in accordance with the power_of_attorney we are sending a copy of this letter to taxpayer’s authorized representatives we are also sending a copy of this letter to the appropriate operating division director plr-141605-12 this letter_ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent sincerely patrick clinton patrick clinton assistant to branch chief branch office of associate chief_counsel income_tax accounting enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court estate of cyril i magnin deceased donald isaac magnin executor petitioner v commissioner of internal revenue respondent docket no filed date donald l feurzeig derek t knudsen and john m youngquist for petitioner susan j adler and rebecca t hill for respondent memorandum findings_of_fact and opinion ruwe judge respondent determined a deficiency of dollar_figure in petitioner's federal estate_tax by amended answer respondent has asserted an increase in the deficiency in petitioner's federal estate_tax in the amount of dollar_figure after concessions the issues for decision are whether decedent's transfers in trust with retained life estates are includable in decedent's gross_estate or whether they are excluded from the estate because they were bona_fide sales for adequate_and_full_consideration under sec_2036 and whether the fair_market_value of certain real_property owned by decedent and subject_to a lease is dollar_figure as determined by petitioner's appraiser or is dollar_figure as determined by respondent in the notice_of_deficiency for convenience the facts with respect to the second issue will be set forth with our opinion on that issue findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts the first second and third supplemental stipulations of facts and the attached exhibits are incorporated herein by this reference petitioner is the estate of cyril i magnin cyril cyril was born in san francisco california on july and died testate on date in san francisco donald isaac magnin 1unless otherwise indicated all section references are to the internal_revenue_code as of the date of decedent's death and all rule references are to the tax_court rules_of_practice and procedure 2petitioner also contends that it is entitled to claim additional deductions under sec_2053 and an increase in the state_death_tax_credit under sec_2011 these issues shall be resolved in accordance with the court's opinion herein under rule decedent's oldest son is the executor of his estate donald magnin filed a timely federal estate_tax_return on behalf of petitioner wherein he elected the alternate_valuation_date date donald magnin resided in san francisco california at the time he filed the estate_tax_return background cyril's father joseph magnin joseph was born in london england on december joseph was the third child of isaac and mary ann cohen magnin mary ann who emigrated from england to san francisco in in mary ann established i magnin a fine clothing store for women joseph started working for i magnin when he was a teenager in he married charlotte davis charlotte the head milliner at i magnin this caused family tensions between joseph and his mother mary ann ran i magnin with an iron hand and had a strict rule against family members' fraternizing with employees cyril was born the next year on july during the years to joseph was being passed over by mary ann for responsible management positions with i magnin in favor of his younger brothers joseph left i magnin in and invested in a store which was organized as a corporation by the name of newman magnin co newman-magnin similar to i magnin newman-magnin specialized in the sale of women's clothing in joseph bought out the other owners and in changed the name of the corporation to joseph magnin co inc jm jm has been in continuous existence as a california corporation from through at least starting a rival women's clothing store using the magnin name caused a rift between joseph and the rest of his family which lasted for many years joseph led jm to compete directly in i magnin's retail market for the same customers and the same suppliers because i magnin had all its finest suppliers tied up in exclusive contracts jm had a difficult time finding suppliers in the early years of jm the store thrived on the strength of charlotte's millinery business which had followed her from i magnin to jm until the late 1930's jm was known in the trade as the second-rate i magnin cyril began working for jm as a child and at the time of world war i he was involved in management in cyril married anna smithline anna and they remained married until anna's death on date cyril and anna had three children donald isaac magnin donald born date ellen lois magnin ellen born date and jerry allen magnin jerry born date cyril's children also began working for jm at early ages anna was a skilled designer and buyer of women's apparel when she and cyril married and she became an important designer and chief buyer of jm's women's apparel although everyone at jm worked as a team anna and cyril's mother charlotte were the key persons in setting the merchandising pace of the store and cyril was more or less the key idea man jm did not do well financially during the great depression joseph started a factoring business donner factors which advanced money to companies against their accounts_receivable donner factors was a successful company and for a long time made more money than jm joseph the president of jm was very conservative he and cyril had differing philosophies as to jm's approach to retailing women's apparel joseph insisted on continuing to compete with i magnin for upscale older customers whereas cyril wanted to tap the market of younger women cyril perceived in the late 1930's that the country was beginning to mobilize as a result of the war and that military personnel were moving west along with their spouses the younger women moving west were increasingly entering the business world and they had money to spend and no preconceived ideas of where to buy these different philosophies led to arguments between joseph and cyril finally in joseph turned the operation of jm over to cyril predicting that he would fail with his crazy ideas joseph remained president of jm but concentrated his efforts on donner factors in date jean blum joseph and cyril formed a nevada corporation by the name of specialty shops inc specialty for the purpose of operating a branch store under the joseph magnin name in reno nevada mr blum who was a close friend of joseph's and eventually of cyril's provided the funds to open specialty's first store in reno because jm lacked the capital to do so mr blum purchased percent of the stock initially issued and lent money to joseph and cyril to purchase the remainder prior to the creation of specialty and the opening of its reno store jm had opened only one other branch store in palo alto california in in date anna died unexpectedly joseph and anna had been very close she had long been a mediator in the disputes between cyril and joseph cyril briefly thought of selling jm to i magnin which upset ellen ellen left school at age moved back home and took over anna's position as buyer for jm in date ellen married walter s newman walter shortly after the wedding walter went to work for jm as a financial troubleshooter and was subsequently put in charge of store operations ie all store activities except merchandising ellen reduced her day-to-day activities at jm immediately after the wedding donald and jerry were also active in operating jm donald began working full time for jm after his graduation from stanford in first as a merchandise bookkeeper and then as a hosiery buyer donald entered the navy during the korean war in he returned to jm in about september of jerry began working full time for jm after he left the air force in in cyril began dating lillian helwig lillian who was the manager of one of the jm stores joseph strongly disliked lillian as did cyril's children they were not pleased when cyril married lillian on date agreement between joseph and cyril in joseph and cyril were concerned about the future of the business cyril had begun dating women after anna's death and joseph wanted to ensure that the business would remain in the family and that cyril's shares of stock would not go to one of these women cyril on the other hand was concerned about control of the business upon joseph's death control of the business was very important to cyril he saw control of the business as a means to enhance his social political and business position in the community cyril also feared that if he had to share control with his children he might someday be fired by them on date joseph and cyril executed a written document which they labeled an agreement concerning their jm and specialty stock the agreement or the agreement as of date jm had issued and outstanding big_number shares of stock consisting of big_number shares of preferred_stock and big_number shares of common_stock all of which had voting rights the 3the articles of incorporation of newman magnin co continued shareholdings of joseph and cyril in jm were as follows common_stock preferred_stock total joseph big_number big_number big_number cyril big_number big_number big_number thus joseph held dollar_figure percent of the voting power of jm and cyril held dollar_figure percent of the voting power together their shares represented dollar_figure percent of the voting power as of date specialty had issued and outstanding big_number shares of stock consisting of big_number shares of voting common_stock and big_number shares of nonvoting preferred_stock the ownership of specialty stock as of that date is unclear but it appears that mr blum owned shares of the common_stock and big_number shares of the preferred_stock and cyril and joseph together owned the remaining shares of common_stock and big_number shares of preferred_stock on date cyril also held certain options to acquire jm stock on date joseph had granted to cyril and anna as joint_tenants with the right_of_survivorship continued subsequently jm were silent as to the voting rights of the preferred_stock until a amendment which expressly provided that the preferred_stock was entitled to voting rights equal to those of the common_stock however it appears that prior to the amendment the preferred_stock was considered to be voting by the corporation and that the holders of the preferred_stock actually did exercise voting rights an option to purchase big_number shares of joseph's common_stock in jm at dollar_figure per share the option could be exercised only within days after joseph's death cyril also held various options to purchase big_number shares of jm common and big_number shares of jm preferred_stock owned by edward r and mae c nichols which were granted by four agreements dated between date and date the nichols options joseph was a party to the may agreement which had granted the option to purchase most of the nicholses' jm stock ie big_number shares of common and big_number shares of preferred_stock the preamble to the agreement set forth the following premises whereas the parties hereto are the owners of the majority of the issued and outstanding_stock of joseph magnin company inc a california corporation and specialty shops inc a nevada corporation hereinafter called said corporations and whereas the parties hereto have over many years last past mutually controlled the operation and management of said corporations in the best interests of said corporations and the stockholders thereof and whereas cyril magnin desires that upon the death of joseph magnin the control of said corporations shall be vested in cyril magnin for the term of his life and whereas joseph magnin is willing under and subject_to the terms and conditions hereinafter set forth to 4in date cyril assigned his rights in the nichols options to the testamentary_trust established by joseph's will of which he was the trustee on date cyril exercised the options on behalf of the trust provide in his last will and testament that all of his stock both common and preferred of said corporations shall be bequeathed to cyril magnin as trustee for the benefit of cyril magnin ellen magnin newman donald magnin and jerry magnin and that cyril magnin as said trustee shall have the sole right to vote said stock for the term of his life as provided in said last will and testament consistent with these premises the terms of the agreement provided that joseph agreed to bequeath his jm and specialty stock to cyril as sole trustee for cyril's life as already provided in his will which provision he agreed not to revoke cyril agreed to will in trust all his jm and specialty stock now owned or hereafter acquired to a bank trustee for the benefit of his three children the agreement also provided that the terms and conditions on the part of cyril were to be secured_by a deposit in pledge with bank of california n a the bank as pledgeholder of the stock belonging to cyril that as long as cyril performed the terms and conditions of the agreement the voting rights would vest in him but in the event of default the voting rights would vest in the pledgeholder cyril agreed not to transfer assign or encumber any of his stock in the corporations except that he could give stock to his children the agreement provided that at no time should the issued and outstanding_stock of the corporations belonging to persons other than joseph cyril or his three children exceed percent except in the event of a sale of the entire capital stock of the corporations moreover any other stock securities cash or other_property received by cyril upon the sale_or_exchange of his stock in either corporation or in the event of a merger consolidation spinoff splitoff or splitup would be subject_to the terms and conditions of the agreement the agreement further provided that in the event of the sale of all or any part of the stock of the corporations or in the event of a dissolution of either corporation cyril would create a_trust of the proceeds received under the terms of which the income of said trust would belong to cyril for his life and the principal would be distributed upon his death to his three children the terms of the agreement were subject_to modification by the unanimous consent of cyril on the one hand and of donald ellen and jerry after he has reached his majority on the other hand by letter dated date and signed by joseph cyril donald and ellen the bank was instructed to hold certain stock certificates solely for safekeeping in accordance with the agreement between joseph and cyril by the terms of the letter the bank was given no responsibility with respect to the performance of the agreement but the stock certificates were subject_to redelivery to cyril upon authorization executed by cyril and joseph or by cyril donald and ellen after joseph's death and if donald were available a schedule attached to the letter identified the certificates and the number of jm shares delivered there is no evidence that joseph and cyril delivered any specialty stock to the bank on date joseph and cyril entered into a supplementary agreement the supplementary agreement referred to the option that joseph had granted to cyril and anna on date to purchase big_number shares of joseph's common_stock in jm at dollar_figure per share pursuant to the terms of the option the certificates representing the big_number shares had been deposited with joseph's attorney nat schmulowitz the supplementary agreement between joseph and cyril provided that the option would remain in effect except that if cyril exercised the option the shares delivered to cyril upon such exercise were to be pledged to the bank and subject_to the terms of the agreement in the event that cyril did not exercise the option then mr schmulowitz would deliver the shares in his possession to the bank to be held subject_to the agreement on date joseph and cyril entered into a second 5there is some discrepancy between the number of shares delivered to the bank and the number of shares owned by joseph and cyril as of date the schedule indicates that big_number shares of jm common_stock were delivered by joseph but joseph owned only big_number shares of jm common_stock as of date similarly the schedule reflects that big_number shares of jm preferred_stock were delivered to the bank by cyril but cyril owned only big_number shares of jm preferred_stock as of date 6the share certificates that were delivered to mr schmulowitz in were not delivered to the bank pursuant to the agreement between joseph and cyril in supplementary agreement this second supplementary agreement set forth the parties' understanding that nothing in the agreement prohibited cyril from selling all his stock of or from dissolving jm or specialty in the event that either corporation received a fair purchase offer in such event cyril agreed to create a_trust of the stock proceeds under the terms of which the income would belong to cyril for his life and the principal would be distributed to his children upon his death cyril also agreed under this second supplementary agreement to vote his shares as an individual and as trustee for joseph's testamentary_trust so that his children would constitute two of the five members of the board_of directors of each corporation performance of date agreement joseph died on date cyril was the executor of joseph's estate joseph's last will and testament bequeathed all his stock in jm and specialty to cyril in trust and provided that cyril was to divide the stock into four separate trusts one- half of the stock was to be placed in the cyril magnin trust for the benefit of cyril one-sixth of the stock was to be placed in each of the three remaining trusts one trust for the benefit of 7it appears that this provision of the second supplemental agreement was drafted in error although cyril promised to vote his shares so that his children would constitute two of the five directors jm had seven and specialty had three authorized directors as of date each of joseph's three grandchildren as the trustee of the four trusts cyril had the power to vote the stock these provisions were as promised by joseph to cyril under the date agreement additionally cyril received a life interest in the income from the cyril magnin trust joseph's estate_tax_return included the value of jm and specialty stock as follows stock per-share value big_number shares jm subject_to option at dollar_figure per share dollar_figure big_number shares jm common dollar_figure big_number shares jm preferred dollar_figure shares specialty common dollar_figure big_number shares specialty preferred dollar_figure the irs estate_tax examiner proposed certain adjustments to joseph's taxable_estate including an increase in the per-share value of jm common and preferred_stock to dollar_figure and dollar_figure respectively the estate agreed to these changes on date cyril executed a last will and testament in which he bequeathed all jm and specialty stock in trust for the benefit of each of his three children the will expressly acknowledged that such provision was in performance of the date agreement between cyril and joseph subsequently on date cyril executed a new will superseding his will which also provided for the creation of a_trust of jm and specialty stock for the benefit of his children in performance of his date agreement with joseph on date cyril created three trusts one for each of his three children he transferred inter alia the proceeds of the jm stock that had been sold in a buyout of all jm stock by amfac inc under the terms of each trust cyril retained an income_interest for his life and upon cyril's death the trust was to terminate and the principal and undistributed_income were to be distributed to the beneficiary for the calendar_quarter ending date cyril filed a gift_tax_return in an attachment entitled statement describing incomplete gifts cyril reported the creation of the three trusts stating that they were created pursuant to pre-existing agreements between himself and his father and explaining that the transfers were not completed gifts the irs accepted the gift_tax_return as filed facts related to value of jm and specialty jm originally operated one location in downtown san francisco in a second store was opened in palo alto california and three other stores were opened between and 1950--one in san mateo and two in sacramento california jm did 8we note that the actual language in both cyril's and wills referred to an date agreement however respondent conceded and we agree that cyril meant to refer to the date agreement not begin to expand considerably until the mid-1950's eventually operating stores by the end of in date cyril joseph and mr blum formed specialty for the purpose of operating a branch store in reno nevada at that time jm lacked the capital to open a new store specialty opened a second store in oakland california in and a third store in lake tahoe nevada in all specialty's stores were operated under the jm name and by jm management and they had merchandise and customers similar to jm's whenever possible jm and specialty elected to lease rather than own their store locations the companies did not have a great deal of available capital and leasing store locations permitted them to expand relevant financial data from the financial statements of jm for the fiscal years ending date through are as follows fiscal_year ending january in thousands assets dollar_figure dollar_figure dollar_figure dollar_figure earned surplu sec_645 sales big_number big_number big_number big_number net_income similarly relevant data from the financial statements of specialty for the fiscal years ending date through are as follows fiscal_year ending january in thousands assets dollar_figure dollar_figure dollar_figure dollar_figure earned surplu sec_120 sale sec_742 net_income opinion the internal_revenue_code imposes a federal estate_tax on the transfer of the taxable_estate of a decedent who is a citizen or resident_of_the_united_states sec_2001 and sec_2002 the value of the gross_estate includes the value of all property to the extent of the decedent's interest therein on the date of death sec_2033 sec_2036 provides that a decedent's gross_estate also includes the value of all property interests transferred by a decedent during his life in which the decedent has retained for life the right to the possession enjoyment or income from the property however sec_2036 does not apply when the property interest of the decedent was transferred pursuant to a bona_fide sale for an adequate_and_full_consideration in money 9the executor however may elect to value a decedent's property as of an alternate_valuation_date ie months after death sec_2032 or money's worth sec_2036dollar_figure the parties do not dispute that the transfer in trust of the proceeds of cyril's shares in jm was one in which he retained a life interest within the meaning of sec_2036 instead petitioner contends that the transfer of the remainder_interest to cyril's children was made pursuant to the terms of the agreement in exchange for cyril's receipt of lifetime voting control of jm and a 50-percent lifetime income_interest in joseph's shares thus petitioner argues that in cyril received adequate_and_full_consideration in money_or_money's_worth when he obligated himself to transfer the remainder_interest in his jm shares pursuant to the agreement we must determine whether the agreement entered into between cyril and joseph in constituted a bona_fide sale supported by adequate_and_full_consideration in money_or_money's_worth as a preliminary matter however we must determine which party bears the burden_of_proof on this issue generally the burden_of_proof is on the taxpayer rule sec_2036 provides general_rule --the value of the gross_estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer except in case of a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth by trust or otherwise under which he has retained for his life the possession or enjoyment of or the right to the income from the property a 290_us_111 the commissioner bears the burden_of_proof however with respect to any new_matter increases in deficiency and affirmative defenses pleaded in the answer rule a an assertion in an amended answer is treated as a new_matter when it either alters the original deficiency or requires the presentation of different evidence 93_tc_500 77_tc_881 the assertion of a new_theory that merely clarifies or develops the original determination is not a new_matter in respect of which the commissioner bears the burden_of_proof wayne bolt nut co v commissioner supra achiro v commissioner supra 61_tc_744 in her notice_of_deficiency respondent determined a deficiency in petitioner's estate_tax of dollar_figure the deficiency was based in large part on respondent's determination that the value of the three trusts created in in which decedent retained a life interest was includable in the gross_estate in the notice respondent determined that the value includable in the gross_estate was dollar_figure which was calculated by taking the value of the three trusts at the appropriate valuation_date dollar_figure less the value of consideration received by decedent in connection with the agreement dollar_figure as more fully discussed below sec_2043 reduces the amount that is includable under sec_2036 by the value of any consideration received by the decedent on date respondent filed a motion for leave to file an amended answer which this court granted in her amended answer respondent asserted a deficiency in petitioner's estate_tax of dollar_figure based in part on respondent's revised determination that decedent received no consideration for the transfer and that the entire value of the three trusts was includable in the gross_estate respondent's assertion in the amended answer that there was no consideration clearly increased the original deficiency accordingly we find that the issues of whether there was any consideration and whether the consideration was less than dollar_figure are new matters in respect of which the burden_of_proof falls on respondent however the burden_of_proof with respect to the other issues remains on petitioner rule a the requirement that there must be adequate_and_full_consideration in order to trigger the exception in sec_2036 is to prevent the depletion of the decedent's_estate 60_tc_211 see also 324_us_303 121_f2d_129 1st cir revg 42_bta_263 the type of consideration contemplated by this exception is not the same as common_law contractual consideration commissioner v wemyss supra pincite 39_tc_1012 rather the exception contemplates the kind of consideration which in an arm's length business transaction provides the transferor_of_property with the full value thereof in exchange and that if the consideration is not paid in money property or services but is represented by some benefit then the benefit must be of the equivalent money value in order to constitute the required adequate_and_full_consideration 17_tc_495 we note that transactions among family members are subject_to particular scrutiny to determine whether they represent a true arm's-length bargain or merely a cooperative attempt to make a testamentary_disposition 16_f3d_462 1st cir affg 100_tc_313 526_f2d_1012 3d cir 69_tc_408 affd 625_f2d_133 6th cir this is not to say however that transactions between family members can never be for consideration in money_or_money's_worth estate of huntington v commissioner supra 510_f2d_617 9th cir estate of morse v commissioner supra pincite even a family agreement although achieved without apparent bitterness has been regarded as bargained for when members of the family had interests contrary to those of other members of the family bank of new york v united_states supra pincite fn ref omitted in the present case although cyril and joseph were father and son the circumstances surrounding the agreement indicate that the parties had divergent interests cyril and joseph were concerned with the future of the family business cyril wanted to gain control of jm following joseph's death cyril feared that if he had to share control with his children he might be fired by them in exchange for obtaining lifetime control cyril agreed to will his own stock in trust for the benefit of his children under the terms of the agreement cyril not only relinquished his freedom to transfer his stock to whomever he wished but also tied up the proceeds of the stock in the event he sold it joseph on the other hand wanted to ensure that cyril's stock would not end up in the hands of one of the women cyril was dating in exchange for cyril's promise not to give his stock to anyone but his children joseph promised not to revoke the provision in his will bequeathing his stock to cyril as sole trustee with voting rights and thus control for cyril's life because a will is an ambulatory instrument that has no effect until the death of the testator without the agreement joseph could have revoked or revised his will any time prior to his death 345_f2d_715 3d cir 24_tc_1141 cyril and joseph put their promises in writing and the agreement represented a give-and-take on each side both parties in fact performed as promised under the agreement based on this record we find that there was an element of bargained-for consideration present the fact that there was some bargained-for consideration does not mean that there was adequate_and_full_consideration within the meaning of sec_2036 in order to constitute adequate_and_full_consideration the value of what the decedent received must be measured against the total value of property that the decedent transferred 347_f2d_7 9th cir 105_tc_252 petitioner does not contest that the value of the stock cyril agreed to transfer pursuant to the agreement exceeded the value of the interest in joseph's stock that cyril receiveddollar_figure rather petitioner contends that because the value of what cyril received exceeded the value of the remainder_interest that cyril transferred to his children he received adequate_and_full_consideration we recently addressed this issue in estate of d'ambrosio v commissioner supra in that case we held that when a decedent receives consideration for making a transfer of property to a 11in its brief petitioner assigns a value of dollar_figure to cyril's entire stock interest dollar_figure of which is allocated to cyril's remainder_interest and assigns a value of only dollar_figure to the interest in joseph's stock received by cyril petitioner's values are based on the opinion of its expert witness using a valuation_date of date respondent's expert assigned a value of dollar_figure to cyril's stock as of that date trust in which the decedent retains only a life interest the adequacy of the consideration must be determined by comparing the value of the consideration received with the total value of the property the decedent transferred to the trust rather than with just the remainder_interest id pincite indeed petitioner's argument is no different from contending that the value of the retained_life_estate should be regarded as part of the consideration received for the transfer an argument this court has specifically rejected 45_tc_323 the same issue was presented in united_states v past supra where the decedent and her husband transferred their community_property to a_trust in which the decedent received an income_interest for life the transfer was pursuant to a divorce settlement citing this court's opinion in estate of gregory v commissioner supra the court_of_appeals for the ninth circuit rejected the argument that the decedent's transfer to the trust was excepted from sec_2036 as a bona_fide sale for adequate_and_full_consideration the court held that the consideration received by the decedent had to be measured against the total value of the property that she contributed to the trust rather than the value of the remainder_interest in the property that she contributed given that the decedent transferred dollar_figure in property to the trust in return for a life_estate worth approximately dollar_figure the court_of_appeals for the ninth circuit held that the decedent did not receive adequate_and_full_consideration under sec_2036 united_states v past supra pincite whether the consideration received by cyril under the agreement was adequate and full within the meaning of sec_2036 must be determined by comparing the value of what cyril received on date with the date value of the stock that cyril owned and agreed to transfer to his children at his death ie the value that otherwise would have been included in his gross_estate by virtue of the retained_life_estate id pincite 293_f2d_916 10th cir estate of d'ambrosio v commissioner supra pincite estate of gregory v commissioner t c pincite gradow v united_states cl_ct affd 897_f2d_516 fed cir such measurement is consistent with the purpose behind the adequate_and_full_consideration exception--to prevent the depletion of the decedent's_estate commissioner v wemyss u s pincite commissioner v bristol f 2d pincite estate of frothingham v commissioner t c pincite accordingly we hold that the consideration received by cyril under the agreement was not adequate and full within the meaning of sec_2036 and therefore the value of the trusts that cyril created in must be included in his gross estatedollar_figure where a transfer of property fails to meet the requirements of this exception to sec_2036 because it was for insufficient consideration sec_2043 provides some relief from potential double_taxation estate of frothingham v commissioner supra pincite sec_2043 provides in pertinent part a in general --if any one of the transfers described in sec_2035 to inclusive and sec_2041 is made for a consideration in money_or_money's_worth but is not a bona_fide sale for an adequate_and_full_consideration in money_or_money's_worth there shall be included in the gross_estate only the excess of the fair_market_value at the time of death of the property otherwise to be included on account of such transaction over the value of the consideration received therefor by the decedent thus under sec_2043 the consideration received is to be valued at the time of receipt by the decedent ie at the time 12even if we were to hold that sec_2036 requires receipt of adequate_and_full_consideration for only the remainder_interest we would find that petitioner has not met its burden of proving that the value of the interest in joseph's stock that cyril received equaled the value of the remainder_interest transferred we conclude infra that the value of the interest received by cyril is dollar_figure the value of the remainder_interest transferred by cyril is dollar_figure according to petitioner and dollar_figure under respondent's calculations these values were determined after the parties made certain posttrial adjustments to their expert reports although we need not determine the precise value of the remainder_interest transferred by cyril we conclude that it was more than dollar_figure this conclusion is based on the evidence including the expert witnesses' opinions and the values placed on jm and specialty stock in gift and estate_tax returns filed by cyril and joseph between and of the agreement between cyril and joseph and then credited against the date-of-death value or as in this case the value as of the alternate_valuation_date of the property subject_to sec_2036 the net amount is to be included in the gross_estate 400_f2d_344 8th cir united_states v past f 2d pincite 307_f2d_688 5th cir revg 35_tc_50 51_tc_269 revd and remanded 440_f2d_896 3d cir estate of gregory v commissioner t c pincite petitioner argues that in valuing the consideration received by cyril this court should apply a proportional rule and reduce the includable value of the trusts by the proportion of the value of the corpus at death that is attributable to the consideration received by cyril under the agreement however it is well settled that the consideration received is to be valued at the time of the transfer ie at the time of the agreement and then credited against the date-of-death value of the property subject_to sec_2036 united_states v righter supra pincite united_states v past supra pincite estate of vardell v commissioner supra pincite estate of davis v commissioner supra pincite estate of gregory v commissioner supra pincite the parties do not dispute that cyril received a life income_interest in percent of joseph's jm and specialty stock as well as the voting rights as trustee with respect to all of joseph's stock the parties do however dispute the value of the interests that cyril received in her notice_of_deficiency respondent permitted an offset for the value of consideration received by cyril in the amount of dollar_figure however as previously mentioned respondent amended her answer to disallow any such offset on brief respondent argues that in the event that this court finds that there was consideration the amount of the offset pursuant to sec_2043 is limited to dollar_figure based on the report and testimony of her expert appraiser stephen a stewart petitioner contends that the value of what cyril received on date is dollar_figure based on the report and testimony of its expert appraiser bryan h browningdollar_figure both experts determined the overall value of jm and specialty using a combination of a discounted future cash-flow analysis and a market comparable analysis the experts differ in their application of premiums or discounts in arriving at the value of the consideration received by cyril mr browning petitioner's expert applied a control premium of percent to the proportional equity value of jm because after execution of the agreement cyril would hold percent of the total 13the difference between the values assigned by each party to the consideration received dollar_figure is not significant when one considers the value of the trusts includable in the gross_estate which is equal to dollar_figure voting rights of jm no similar premium was applied to the specialty stock mr stewart on the other hand applied a percent discount for lack of marketability and a 20-percent minority discount because the interest that joseph transferred to cyril amounted to less than percent of the stock in each companydollar_figure the term value means fair_market_value which is the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts sec_20_2031-1 estate_tax regs the standard is objective using a purely hypothetical willing buyer and seller 680_f2d_1248 9th cir 94_tc_193 estate of mueller v commissioner tcmemo_1992_284 however the hypothetical sale should not be constructed in a vacuum isolated from the actual facts that affect the value of 14mr stewart applied the minority discount only under the discounted future cash-flow approach because in his opinion the market comparison approach already produces a per-share value for a minority interest 15while expert opinions can assist the court in evaluating a claim we are not bound by the opinion of any expert witness and may reach a decision based on our own analysis of all the evidence in the record 304_us_282 538_f2d_927 2d cir affg tcmemo_1974_285 94_tc_193 the stock 79_tc_938 petitioner must prove that respondent's determination of value set forth in her notice_of_deficiency is incorrect rule a 290_us_111 88_tc_38 respondent bears the burden of proving the increases in the deficiency asserted in her amended answer rule a 94_tc_582 valuation is a question of fact and the trier of fact must weigh all relevant evidence to draw the appropriate inferences 325_f2d_934 8th cir affg tcmemo_1961_347 estate of newhouse v commissioner supra pincite after considering the reports and testimony of both experts and all the other evidence in the record we think that neither party has shown that the value of the interest received by cyril should be greater or less than the dollar_figure determined by respondent in her notice_of_deficiency accordingly we hold that petitioner is entitled to reduce the includable value of the trusts by dollar_figure pursuant to sec_2043 the final issue for decision concerns the fair_market_value of a retail shoe store located in louisville kentucky as of date the alternate_valuation_date petitioner valued the property at dollar_figure on its estate_tax_return in the notice_of_deficiency respondent valued the property at dollar_figure at trial and on brief petitioner argued that the value of the property was dollar_figure the fair_market_value of property is a question of fact the value determination in the notice_of_deficiency is presumed correct and petitioner bears the burden of proving otherwise rule a welch v helvering supra the subject property a retail shoe store is located in an older inner-city neighborhood west of the downtown area of louisville the area is depressed and property values have steadily declined in the area since the 1960's the site is zoned for commercial use the property was purchased by cyril for dollar_figure and the deed was recorded in date the property was subject_to a lease which commenced on date and was for an initial term of years at the end of the initial lease period the tenant had the right to extend the term for two additional consecutive periods of years each the terms of the lease provided for minimum annual payments of dollar_figure plu sec_5 percent of the gross_sales less the minimum rent the tenant was responsible for all expenses directly related to the property including taxes insurance and interior and exterior maintenance petitioner introduced a report and testimony of its expert 16respondent's valuation in the notice_of_deficiency of dollar_figure was based upon the income stream provided for in the lease capitalized at a rate of percent appraiser j michael jones mr jones valued the property as of date although petitioner elected to use the alternate_valuation_date of date mr jones testified that he did not think his appraisal would have changed had it been made as of months later mr jones used the cost approach the sales comparison approach and the income capitalization approach to value the property giving the most weight to the latter method pursuant to the income capitalization approach mr jones began with the income stream provided for in the lease and subtracted out a relatively small allowance for vacancy and collection_loss due to the long-term_lease as well as an amount for management expenses mr jones determined a capitalization rate of percent using the mortgage-equity technique and he applied this rate to the operating income stream we find petitioner's expert to be a credible witness he utilized acceptable appraisal methods and his underlying assumptions were reasonable we therefore find that petitioner has met its burden of proving that the value of the property was dollar_figure decision will be entered under rule


t c memo united_states tax_court john lewis hill petitioner v commissioner of internal revenue respondent docket nos filed date john lewis hill pro_se anne m craig for respondent memorandum findings_of_fact and opinion marvel judge in these consolidated cases respondent determined deficiencies in petitioner’s federal_income_tax and additions to tax under sec_6651 and and as follows unless otherwise indicated all statutory references are to the internal continued additions to tax_deficiency sec_6651 sec_6651 sec_6654 dollar_figure big_number dollar_figure big_number dollar_figure big_number dollar_figure big_number year in amendments to answers respondent asserted increased deficiencies and increased additions to tax as follows additions to tax_year deficiency sec_6651 sec_6651 sec_6654 dollar_figure big_number dollar_figure big_number -0- -0- dollar_figure big_number after concessions the issues for decision are whether petitioner is liable for federal_income_tax deficiencies for and whether petitioner is liable for additions to tax under sec_6651 and sec_6654 and whether petitioner continued revenue code code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar for respondent concedes that petitioner is not liable for the addition_to_tax under sec_6651 petitioner is not liable for the addition_to_tax under sec_6654 petitioner’s short-term_capital_gain was dollar_figure and petitioner did not receive dollar_figure in nonemployee compensation income for respondent concedes the addition_to_tax under sec_6651 is liable for a penalty under sec_6673 for instituting proceedings primarily for delay or for asserting frivolous or groundless positions findings_of_fact some of the facts have been deemed established for purposes of these cases pursuant to rule f these facts are incorporated herein by this reference petitioner resided in florida when he petitioned this court i petitioner’s business activities during the years at issue petitioner was self-employed as a hearing aid specialist he ordered and sold hearing aids performed hearing tests and fitted and adjusted hearing aids for customers petitioner performed his hearing aid activities through his sole_proprietorship precision hearing aid center precision hearing precision hearing was in st cloud florida through precision hearing petitioner received medical payment income that was reported to respondent on third-party information returns for both and in petitioner received dollar_figure in medical payment income from blue cross blue shield of florida inc in petitioner received medical payment precision hearing aid center was also known as precision hearing aid system we refer to precision hearing aid center and precision hearing aid system as precision hearing income of dollar_figure from citrus health care dollar_figure from united healthcare insurance co and dollar_figure from blue cross blue shield of florida inc respondent analyzed petitioner’s bank_deposits to determine petitioner’s unreported business income for and petitioner maintained accounts at bank of america and washington mutual these accounts included an account in the name of precision hearing receipts from petitioner’s hearing aid business were generally deposited into the precision hearing account or one of petitioner’s other two accounts in total petitioner deposited business receipts of dollar_figure and dollar_figure in and respectively ii investment accounts petitioner maintained investment accounts at td ameritrade and adm investor services inc adm during the years at issue in petitioner received dollar_figure from the sale of stocks and bonds through ameritrade and petitioner does not dispute the amount of the gross deposits or taxable deposits as determined by respondent’s bank_deposits analysis petitioner assigns error only to the characterization of the deposits as subject_to federal_income_tax respondent initially determined that petitioner made gross deposits of dollar_figure in and dollar_figure in respondent introduced the revised bank_deposits analysis detailed above at trial petitioner did not object to the introduction of the revised untimely bank_deposits analysis in part because the revised bank_deposits analysis reduced his taxable receipts dollar_figure in income from adm in petitioner received through ameritrade dollar_figure from the sale of stocks and bonds dollar_figure in dividend income and dollar_figure in interest_income iii petitioner’s returns and notices of deficiency on date respondent received petitioner’s form sec_1040 u s individual_income_tax_return for and with the exception of line sec_40 and sec_41 showing the standard_deduction as a positive amount and a negative_amount respectively and line showing the exemption_amount each line on petitioner’s form sec_1040 was either blank or filled in with a zero petitioner reported taxable_income of zero for each year and did not make any_tax payments for either of the years at issue respondent introduced into evidence substitute form 1099-b proceeds from broker and barter_exchange transactions which showed petitioner had income of dollar_figure from adm in on date respondent filed a motion to show cause why proposed facts and evidence should not be accepted as established under rule f included in respondent’s facts at paragraph was a proposed finding that petitioner earned dollar_figure in income from adm in by order dated date this court deemed established the facts and evidence set forth in respondent’s motion to show cause we resolve the discrepancy in petitioner’s income from adm in by treating dollar_figure as petitioner’s income in accordance with form 1099-b petitioner attached to each of his and form sec_1040 a document purporting to correct to zero the amounts on certain forms the documents attached to petitioner’s form sec_1040 included the following statement the purpose of this document is to rebut and correct payments made to myself john l hill by third party payers for the year s and that erroneously allege gains profit or income made in the course of a trade_or_business as the term trade_or_business is defined under sec_7701 income for the purpose of an income_tax or gross_income for the purpose of an income_tax the corrected amounts indicate the proper amount of gains profit or income made in the course of a trade_or_business as the term trade_or_business is defined under sec_7701 income for the purpose of an income_tax or gross_income for the purpose of an income_tax paid to me the recipient by those third party payers respondent determined that petitioner’s and form sec_1040 were not valid returns and issued a notice_of_deficiency dated date for and a notice_of_deficiency dated date for respondent increased the the document attached to petitioner’s return purported to correct form 1099-misc miscellaneous income filed by blue cross blue shield of florida inc form 1099-b filed by adm and consolidated form 1099-int- div-misc-oid-1099b filed by ameritrade the document attached to petitioner’s return purported to correct forms 1099-misc filed by united health care insurance co blue cross blue shield of florida inc and citrus health care and consolidated form_1099 filed by ameritrade petitioner also attached to both his and returns a letter in which he objected to having to file a form_1040 and questioned respondent’s authority to request a form_1040 deficiencies for and in amendments to answers on the basis of petitioner’s bank_deposits i burden_of_proof opinion ordinarily the commissioner’s determinations in a notice_of_deficiency are presumed correct and the taxpayer bears the burden of proving that the determinations are erroneous rule a 290_us_111 however if the commissioner raises a new issue or seeks an increase in the deficiency the commissioner bears the burden_of_proof as to the new issue or increased deficiency see rule a the record establishes and petitioner concedes that he received payments for services as a hearing aid specialist certain interest and dividend income and proceeds from the sale of stock petitioner does not dispute respondent’s determinations of the amounts of his taxable_income he disputes only the characterization of these payments as taxable_income because petitioner petitioner disputed the accuracy of certain forms in his petitions and at trial under sec_6201 if a taxpayer asserts a reasonable dispute with respect to an item_of_income reported on an information_return filed by a third party and the taxpayer meets certain other requirements the commissioner bears the burden of producing reasonable and probative evidence in addition to the information_return concerning the deficiency attributable to the income item continued raises only legal issues we decide whether he is liable for the deficiencies at issue without regard to the burden_of_proof ii unreported income sec_61 defines gross_income as all income from whatever source derived including interest_income gains from dealings in property and compensation paid for services whether furnished by the taxpayer as an employee a self-employed_person or an independent_contractor see sec_61 and commissioner v glenshaw glass co 38_us_426 petitioner continued petitioner admitted that he performed services for and received medical payments from the various health care companies for which respondent received forms during the years at issue petitioner also admitted that the information returns respondent received reported the correct payment amounts petitioner has not raised any reasonable dispute with respect to the accuracy of the information returns we conclude that petitioner’s attempt to dispute the accuracy of the information returns under these circumstances is not reasonable under sec_6201 see eg carlson v commissioner tcmemo_2012_76 hyde v commissioner tcmemo_2011_131 respondent however bears the initial burden of production with respect to the additions to tax see sec_7491 infra p a taxpayer must maintain books_and_records establishing the amount of his or her gross_income sec_6001 if a taxpayer fails to maintain the required books_and_records the commissioner may determine the taxpayer’s income by any method that clearly reflects income see sec_446 92_tc_661 the bank_deposits method is a permissible method of reconstructing income 102_tc_632 see continued contends that the income he received from his hearing aid business is not income subject_to federal taxation likewise petitioner contends that his interest_income dividend income and stock sale proceeds are not subject_to federal taxation petitioner supports his position by contending among other things that he was not involved in a trade_or_business as defined by the code petitioner defines a trade_or_business to include only the performance of the function of a public_office and not his private sector activities for which he received only private sector money petitioner therefore asserts that the amounts he received from all third- party payors are not gain or profit from a trade_or_business as defined in sec_7701 taxable_income or gross_income petitioner also contends that he is not a person statutorily made liable for the income_tax the income_tax is an excise_tax he did not have income within the meaning of the sixteenth_amendment and the income_tax does not apply to the receipts of all american citizens continued also 981_f2d_350 8th cir aff’g in part rev’g in part 96_tc_172 petitioner did not maintain books_and_records sufficient to establish his gross_income from his hearing aid business consequently respondent’s bank_deposits analysis was a permissible method for reconstructing petitioner’s business income without exception petitioner has raised only frivolous and groundless arguments the u s court_of_appeals for the eleventh circuit has repeatedly held similar arguments to be frivolous and without merit see 419_fedappx_958 11th cir holding that the taxpayers’ argument that they were not involved in a trade_or_business was frivolous 532_f3d_1130 11th cir holding that an argument that income from work in the private sector is not subject_to income_tax was frivolous 788_f2d_1509 11th cir stating that arguments that the taxpayer is not a person subject_to the income_tax and that the internal_revenue_service does not have jurisdiction over the taxpayer are patently frivolous 785_f2d_928 11th cir holding that the taxpayer’s arguments that only public servants are subject_to tax_liability were frivolous in his numerous pretrial filings petitioner repeatedly invites our attention to various court opinions including most prominently 240_us_1 the supreme court’s opinion in brushaber strikes down every objection advanced in that case regarding the constitutionality of the income_tax provisions of the tariff act see powers v commissioner tcmemo_2009_229 nothing in the supreme court’s opinion in brushaber supports any contention petitioner makes in the instant cases to contend otherwise is frivolous likewise none of petitioner’s additional citations of legal precedent support his contentions indeed petitioner’s frivolous and groundless arguments warrant no further discussion see 737_f2d_1417 5th cir 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 see also 136_tc_498 because self-employment_income dividends capital_gains and interest must be included in petitioner’s income under sec_61 we sustain respondent’s determinations with respect to the increased deficiencies as modified by concessions iii additions to tax if a taxpayer assigns error to the commissioner’s determination that the taxpayer is liable for an addition_to_tax the commissioner has the burden under sec_7491 of producing evidence with respect to the liability of the taxpayer for the additions to tax see 116_tc_438 to meet this burden of production the commissioner must come forward with sufficient evidence showing that it is appropriate to impose the addition_to_tax id once the commissioner meets his burden the taxpayer must come forward with sufficient evidence to persuade this court that the determination is incorrect id respondent determined that petitioner is liable for additions to tax under sec_6651 for failure to timely file returns for and sec_6651 authorizes the imposition of an addition_to_tax for failure to timely file a return unless it is shown that such failure is due to reasonable_cause and not due to willful neglect see 469_us_241 38_f3d_440 9th cir failure_to_file a timely federal_income_tax return is due to reasonable_cause if the taxpayer exercised ordinary business care and prudence but nevertheless was unable to file the return within the prescribed time see sec_301_6651-1 proced admin regs willful neglect means a conscious intentional failure_to_file or reckless indifference towards filing boyle u s pincite to meet the requirement of filing a return a taxpayer must file a valid_return see 82_tc_766 aff’d 793_f2d_139 6th cir under beard v commissioner t c pincite a valid_return is one that contains sufficient data to calculate a tax_liability purports to be a return represents an honest and reasonable attempt to satisfy the requirements of the tax law and is executed by the taxpayer under penalties of perjury a taxpayer who files a document that purports to be a federal_income_tax return but which contains only zeros on the relevant lines has not filed a valid_return because it does not contain sufficient information for the commissioner to calculate and assess a tax_liability see 120_tc_163 hamilton v commissioner tcmemo_2009_271 respondent introduced into evidence petitioner’s and form sec_1040 on which petitioner reported zero taxable_income and which contained zeros on all relevant lines attached to petitioner’s form sec_1040 were documents on which petitioner purported to correct to zero taxable_income reported by certain third-party payors respondent also introduced deemed stipulations that petitioner had income from various sources in amounts sufficient to require the filing of returns respondent did not treat petitioner’s purported returns as valid returns and the record supports respondent’s position see cabirac v commissioner t c pincite consequently we conclude that respondent has satisfied his burden of production under sec_7491 petitioner must come forward with evidence sufficient to persuade the court that respondent’s determination is in error petitioner did not introduce any evidence to prove that he is not liable for the additions to tax or that he had reasonable_cause for his failure to timely file valid returns accordingly we conclude that petitioner is liable for the sec_6651 addition_to_tax for and respondent also determined that petitioner is liable for an addition_to_tax for failure to pay estimated_tax under sec_6654 for sec_6654 imposes an addition_to_tax on an individual who underpays his estimated_tax the addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 and d each required_installment of estimated_tax is equal to of the required_annual_payment sec_6654 the required_annual_payment is equal to the lesser_of of the tax shown on the individual’s return for that year or if no return is filed of his tax for such year or if the individual filed a valid_return for the immediately preceding_taxable_year of the tax shown on that return see sec_6654 b and c a taxpayer has an obligation to pay estimated_tax only if he has a required_annual_payment 127_tc_200 aff’d 521_f3d_1289 10th cir see also 121_tc_308 respondent introduced evidence showing that petitioner had federal_income_tax liabilities that petitioner was required to file federal_income_tax returns for and that petitioner did not file a valid federal_income_tax unless a statutory exception applies the sec_6654 addition_to_tax is mandatory see sec_6654 e 91_tc_874 return for or and that petitioner did not make any estimated_tax payments therefore respondent has shown petitioner had a required_annual_payment under sec_6654 for accordingly we hold that petitioner is liable for the sec_6654 addition_to_tax for iv sec_6673 penalty under sec_6673 this court may require a taxpayer to pay a penalty not in excess of dollar_figure whenever it appears that the taxpayer has instituted or maintained proceedings primarily for delay the taxpayer’s position is frivolous or groundless or the taxpayer unreasonably failed to pursue available administrative remedies a taxpayer’s position is frivolous or groundless if it is ‘contrary to established law and unsupported by a reasonable colorable argument for change in the law ’ 114_tc_136 quoting 791_f2d_68 7th cir throughout these proceedings petitioner repeatedly asserted arguments that are contrary to well-established law and are frivolous at trial petitioner did not testify regarding any factual matters and instead persisted in asserting frivolous and groundless arguments although this court provided ample warning in pretrial proceedings of the potential implications of continuing to assert those frivolous and groundless arguments petitioner did not abandon his arguments or acknowledge his liability for income_tax on the income he received in and dollar_figure petitioner has wasted the time and resources of this court the record demonstrates that petitioner maintained these proceedings primarily for delay and that petitioner’s asserted positions were frivolous and groundless in the exercise of our discretion we conclude that a penalty under sec_6673 is appropriate petitioner shall pay to the united_states a penalty of dollar_figure under sec_6673 in each of the consolidated cases for a total sec_6673 penalty of dollar_figure petitioner is no stranger in this court in a case at docket no 13267-09l we sustained respondent’s determination to proceed with the collection by lien and levy of petitioner’s unpaid liabilities for in doing so we warned petitioner that he might become subject_to a sec_6673 penalty in future cases if he persisted in maintaining proceedings for delay or otherwise advanced frivolous arguments at docket no 15452-10l a collection_due_process case for concerning imposition of a sec_6702 penalty for filing a frivolous_return we held that petitioner’s form_1040 reflects a desire which appears on the purported return to delay or impede the administration of federal tax laws and imposed on petitioner a sec_6673 penalty of dollar_figure unfortunately the imposition of sanctions in docket no 15452-10l our previous warnings in docket no 13267-09l and our repeated warnings in these consolidated cases did not deter petitioner from advancing the same frivolous arguments in his pretrial memorandum and at trial a more substantial penalty is warranted we have considered the remaining arguments made by the parties and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the parties’ concessions and the foregoing decisions will be entered under rule