t c memo united_states tax_court neil l whitesell and tracy l whitesell petitioners v commissioner of internal revenue respondent docket no filed date p-h owned a interest in wic an s_corporation in a michigan trial_court entered a civil monetary judgment against wic for tax years and r allowed wic dollar_figure in deductions for the judgment and interest thereon in the michigan court_of_appeals reversed the trial_court and remanded the case in r determined deficiencies for and the deficiency for was premised in part on r’s determination that wic must include dollar_figure in income for tax_year because was the year in which the michigan court_of_appeals reversed the judgment ps filed a petition in this court in date and filed an amended petition in date in neither pleading did ps challenge r’s determination of the amount of income inclusion dollar_figure or the year of inclusion three years later in date ps moved to file an amendment to the amended petition to assert that wic had settled the michigan lawsuit in and that the income inclusion had to be made for the tax_year by the time ps filed their date motion the three-year period for assessing tax for ps’ tax_year had expired held ps’ motion will be denied william m sharp alexander r olama and james p dawson for petitioners joel d mcmahan mark j tober and christopher a pavilonis for respondent memorandum opinion morrison judge pursuant to sec_6212 the respondent the irs determined deficiencies in tax for petitioners mr neil l whitesell and ms tracy l whitesell for tax_year sec_2011 and sec_2012 in the respective amounts of dollar_figure and dollar_figure the irs also determined an addition_to_tax under sec_6651 for of dollar_figure the main adjustment giving rise to the deficiency for was the irs’s determination that whitesell international corp wic an s_corporation in which mr whitesell owned a interest must include dollar_figure in its income for the whitesells timely 1unless otherwise indicated all references to sections are to the internal_revenue_code_of_1986 as amended and in effect for the and years and all references to rules are to the tax_court rules_of_practice and procedure petitioned this court pursuant to sec_6213 for redetermination of the deficiencies and the addition_to_tax they also filed an amended petition now before us is a motion filed by the whitesells on date for leave to file an amendment to the amended petition premised on the theory that if the dollar_figure amount is includable in wic’s income it is includable only for the tax_year we will deny the motion background the background facts set forth below are derived from court papers in this case including the pleadings and the stipulation of facts and the exhibits referred to and attached to the stipulation of facts uncontroverted written representations by the parties ie the whitesells and the irs and certain portions of the opinion of the michigan court_of_appeals in whitesell int’l corp v whitaker no mich app lexis date that except as noted below the parties agree we can accept as true the background facts are stated solely for deciding the whitesells’ motion and are not findings_of_fact for purposes of deciding this case see rule b fed r civ p a 115_tc_15 aff’d 269_f3d_854 7th cir the michigan litigation and the tax reporting of the michigan litigation during the relevant periods mr whitesell owned a interest in three s_corporations wic whitesell corp and nlw holdings llc nlw holdings in date wic filed a lawsuit against william a whitaker and two other defendants in a michigan trial_court whitesell int’l corp mich app lexis at wic alleged that whitaker had disclosed a trade secret the stamptech process for manufacturing interconnected pierce nuts id at pierce nuts are a type of fastener that pierce directly into sheet metal and provide a threaded base on which to affix material to the sheet metal id at interconnected pierce nuts are connected to each other with pieces of wire id whitaker filed a counterclaim against wic alleging that wic had filed its lawsuit against whitaker solely to prevent competition id at the michigan trial_court dismissed wic’s complaint on grounds of res_judicata id at whitaker’s counterclaim against wic remained pending id the main issue in whitaker’s counterclaim was whether wic reasonably believed the stamptech process was a trade secret when it filed its lawsuit against whitaker id at after a jury trial whitaker moved for a partial directed verdict on the narrow issue of whether the stamptech process constituted a trade secret id at the michigan trial_court granted the motion and instructed the jury that the stamptech process was not a trade secret id at the jury returned a verdict in whitaker’s favor and against wic id at in essence the jury having been instructed by the judge that the stamptech process was not a trade secret found that wic did not reasonably believe the stamptech process was a trade secret see id at on date the michigan trial_court entered judgment in whitaker’s favor and against wic in the amount of dollar_figure or dollar_figure when rounded to the nearest dollar this amount comprised the following six jury awards dollar_figure million in damages for tortious interference with business relationship or expectancy dollar_figure for violation of the michigan antitrust reform act mcl sec et seq dollar_figure in attorney’s fees dollar_figure in costs dollar_figure in expert-witness costs and dollar_figure in prejudgment_interest whitesell int’l corp mich app lexis at wic appealed the judgment of the michigan trial_court to the michigan court_of_appeals id at on or about date wic filed its form_1120s u s income_tax return for an s_corporation for tax_year the year judgment was entered in whitaker’s favor and against wic the parties have stipulated that wic deducted dollar_figure for the judgment on its tax_return this amount apparently included both the judgment and interest on the judgment on or about date wic filed its form_1120s for wic did not report a deduction for interest on the judgment in the michigan case on or about date wic filed its form_1120s for wic did not report a deduction for interest on the judgment in the michigan case on date the michigan court_of_appeals held that the michigan trial_court erred in granting whitaker’s motion for a partial directed verdict on the question of whether the stamptech process was a trade secret id at the michigan court_of_appeals reversed the verdict of the michigan trial_court id at and remanded the case for further proceedings id at 2our finding that a remand was ordered by the michigan court_of_appeals is based on its opinion which stated that the case was a ffirmed in part reversed in part and remanded for further proceedings consistent with this opinion whitesell int’l corp v whitaker no mich app lexis at date the irs objected to our accepting as true the statement by the michigan court_of_appeals opinion that it had remanded the case the irs contended that this statement was contrary to a stipulation in our case that wic’s appeal was successful in and relieved it of the judgment see infra pp continued on date wic filed its form_1120s for wic did not report any income to account for the michigan court_of_appeals reversal of the michigan trial_court judgment on date the whitesells filed their form_1040 u s individual_income_tax_return for wic’s form_1120s for the next year is not among the court papers on date the whitesells filed their form_1040 for in wic and whitaker settled the michigan case according to the whitesells’ date motion for leave to file an amendment to the amended petition and according to the proposed amendment examination the irs examined the whitesells’ tax returns the parties entered into the following stipulations concerning the irs examination continued however we do not believe the stipulation is contrary to the fact that the michigan court_of_appeals ordered a remand the michigan court_of_appeals reversed the verdict of the michigan trial_court thus wic was successful in its appeal and was relieved of liability for the dollar_figure judgment even though the liability could have been reimposed by the trial_court on remand having thus rejected the irs’s contention we accept as true the statement in the opinion of the michigan court_of_appeals that it remanded the case for its income_tax year wic was allowed a deduction of dollar_figure for interest associated with the adverse judgment it received in the civil trial for its income_tax year wic was allowed a deduction of dollar_figure for interest associated with the adverse judgment it received in the civil trial for it sec_2010 income_tax year wic was allowed a deduction of dollar_figure of interest associated with the adverse judgment it received in the civil trial notice_of_deficiency on date the irs mailed a notice_of_deficiency to the whitesells for and the notice_of_deficiency made a dollar_figure adjustment to wic’s income for the adjustment appeared on line c of form 4549-a income_tax examination changes which is part of the notice_of_deficiency the notice_of_deficiency explained that wic had been allowed a deduction for legal fees in prior tax years that wic was no longer liable for these fees and that wic must increase its ordinary_income by these fees for tax_year the deductions allowed in prior years were described in the notice_of_deficiency as follows dollar_figure for judgment--allowed in dollar_figure for allowable interest expense--2008 dollar_figure for allowable interest expense--2009 and dollar_figure for allowable interest expense--2010 the notice_of_deficiency thus concluded that wic had been allowed dollar_figure in deductions for the judgment and interest on the judgment for the years the whitesells agree that wic was allowed dollar_figure in deductions for the years as described in the notice_of_deficiency thus we have enough information to compare the deductions allowed to the deductions reported by wic on its forms 1120s the comparison is as follows 3dollar_figure dollar_figure dollar_figure dollar_figure ' dollar_figure deductions for michigan judgment and interest on judgment year deduction total judgment interest judgment interest interest interest as reported on wic forms 1120s as adjusted and allowed by irs n a1 dollar_figure n a1 big_number dollar_figure big_number -0- big_number -0- big_number big_number big_number 1the deductions for judgment and interest for were not separately reported they were reported as a total amount--dollar_figure the notice_of_deficiency determined that wic was required to include dollar_figure in its income for the notice_of_deficiency also made a noncomputational adjustment to wic’s income for it determined that wic was entitled to additional ie unreported depreciation_deductions of dollar_figure thus the total adjustment to wic’s income for was dollar_figure or dollar_figure minus dollar_figure because mr whitesell owned the entire_interest in wic and the whitesells were married and filing jointly the entire income adjustment passed through to the whitesells the notice_of_deficiency also made the following adjustments to the whitesells’ income year adjustment by notice_of_deficiency increased the income of nlw holdings by dollar_figure increased the income of nlw holdings by dollar_figure decreased the income of wic by dollar_figure decreased the income of whitesell corp by dollar_figure decreased the income of whitesell corp by dollar_figure allowed a dollar_figure additional net-operating loss carried forward from to disallowed a net-operating-loss carryforward from to of dollar_figure disallowed dollar_figure in itemized_deductions allowed dollar_figure of additional itemized_deductions determined that dollar_figure in ira_distributions was includable in income determined that dollar_figure in interest_income was includable in income disallowed a dollar_figure domestic-production-activities deduction determined that dollar_figure in dividend income was includable in income all dollar amounts in the notice_of_deficiency to which we refer except for the amount of the sec_6651 addition_to_tax end in the notice_of_deficiency stated this report supersedes the report dated procedural history on date the whitesells residents of florida filed a timely petition for redetermination of the deficiencies and the addition_to_tax the whitesells were unrepresented at the time they filed their petition with the court on date the court ordered the whitesells to file a proper amended petition including clear and concise assignments of each and every error they allege was committed by the irs in the notice_of_deficiency and clear and concise statements of every fact upon which they base each assignment of error on date the whitesells filed an amended petition in response to the court’s date order they alleged that the irs failed to assess tax against nlw holdings wic and whitesell corp for and as a result the period for assessing tax had closed with respect to the dollar_figure adjustment to wic’s income for a table in the amended petition showed that the adjustment was disputed by the whitesells and that their comment on error by irs position was that the irs failed to assess taxpayer timely the amended petition further explained that the facts and information supporting our position with respect to the dollar_figure adjustment were that reconsideration was superceded sic as can be discerned from other portions of the amended petition this is shorthand for the whitesells’ argument that during the examination the irs made an assessment of tax on or of wic for wic’ sec_2011 tax_year and the notice_of_deficiency superseded the assessment made during the examination thus nullifying the assessment although the amended petition challenged the adjustment to wic’s income for on grounds of an alleged lack of assessment it did not dispute the amount of the adjustment or the proper year for adjustment on date the whitesells mailed to the irs a modified form 656-l offer_in_compromise offering to compromise or settle their income_tax liabilities for dollar_figure million the whitesells enclosed a dollar_figure million check with the form 656-l on date the irs received the form 656-l and deposited the dollar_figure million check on date the irs sent the whitesells a letter stating that it was returning the form 656-l and the dollar_figure million 4nor could the original unamended petition be construed to dispute the amount of the adjustment or the proper year for adjustment on date the irs filed its answer to the amended petition on date the irs sent the whitesells a letter stating that it had closed its file on the form 656-l and that it was in the process of refunding the dollar_figure million on or before date the irs refunded the dollar_figure million to the whitesells on date the irs filed a rule f motion requesting that the court order the whitesells to show cause why respondent’s proposed stipulation of facts should not be deemed established paragraph of the proposed stipulation of facts stated petitioners in this proceeding are disputing only the flow-through adjustments reflected in the notice_of_deficiency with respect to entities owned by petitioners on date the court ordered the whitesells to show cause why the proposed facts in the stipulation of facts should not be deemed established and why the exhibits referred to and attached to the stipulation of facts should not be deemed admitted into evidence on date the whitesells responded to the date order to show cause contending that the irs had not issued any assessment to wic regarding it sec_2011 form_1120s the whitesells alleged that the three-year statute_of_limitations on assessment of wic’ sec_2011 tax_year expired on date without a valid assessment by the irs they also made clear they did not dispute the amount dollar_figure or year of the adjustment addressing paragraph of the proposed stipulation of facts the whitesells made the following statement subject_to the petitioners sic position on snod that the statue sic is closed on all 1120s assessments see exhibit 4-p and offer_in_compromise acceptance of all tax years irs claims see exhibit 5-p the petitioners are not disputing all of the amounts listed in form 4549-a copy attached as exhibit 6-p or summarized items in respondent stipulation on the tax adjustments the following details petitioners specific agreement at the line level and amount tax adjustments petitioner sic agrees petitioners agree to the amount on line c legal expense of dollar_figure except amount is off by typo error of dollar_figure and if there is no adverse whipsaw effect on and returns where the irs assessment in added expense of dollar_figure and added expense of dollar_figure for interest_expense allowed by the irs attached to the whitesells’ response were several documents including exhibits marked by the whitesells as exhibit 4-p exhibit 5-p and exhibit 6-p referenced in the quotation above these exhibit numbers were not assigned by the court exhibit 4-p is a date legal memorandum explaining the whitesells’ argument that the irs failed to assess tax against wic for tax_year exhibit 5-p is a date legal memorandum explaining the whitesells’ argument that the irs settled their income_tax liabilities for the years by accepting their dollar_figure million offer-in-compromise the substance of that argument is that under the uniform commercial code the deposit of the dollar_figure million check by the irs constituted acceptance of the offer-in-compromise exhibit 6-p is a copy of a form 4549-a that is part of the notice_of_deficiency line c of the form 4549-a shows a dollar_figure adjustment for sch e--whitesell international corporation the whitesells additionally stated in their response that they agreed that the adjustment made on line c of the form 4549-a attached to the notice_of_deficiency in the amount of dollar_figure is correct except they added the following caveat big_number off the whitesells also asserted that wic reported an increase in its income on it sec_2011 nontax financial statements to reflect the favorable disposition of the michigan lawsuit they asserted that the reason wic did not report an increase in its taxable_income for was that the irs had instructed them not do so because an examination for the year was then pending on date the whitesells and the irs agreed to a stipulation of facts some of the stipulated facts have already been discussed as relevant here the parties made the following stipulations in wic received an unfavorable judgment in the michigan trial_court a copy of which was attached to the stipulation of facts wic deducted dollar_figure on line of its form_1120s for other deductions the deduction on line of wic’s form_1120s included dollar_figure in legal and other professional fees dollar_figure of the dollar_figure deduction corresponds to the michigan court judgment for wic was allowed a dollar_figure deduction for interest associated with the judgment for wic was allowed a dollar_figure deduction for interest associated with the judgment for wic was allowed a dollar_figure deduction for interest associated with the judgment in wic’s appeal of the civil judgment was successful relieving it of responsibility for each of the amounts previously allowed as deductions and wic did not report income for to reflect the judgment relief and reversal of the prior deductions related to that civil judgment the amounts of the awards in the copy of the judgment attached to the stipulation total dollar_figure as rounded to the nearest dollar on date the irs filed a motion for partial summary_judgment arguing that the limitations_period on assessment had not expired with respect to either the or tax_year the irs also argued that it had not accepted the whitesells’ dollar_figure million offer-in-compromise on date the court ordered the whitesells to file a response to the irs’s motion for partial summary_judgment the court also ordered the motion set for hearing on date on date the court ordered that its date order to show cause was discharged ie that the order had been satisfied on date the whitesells filed a response to the irs’s motion for partial summary_judgment arguing that the irs never assessed the 1120s taxpayers at all addressing the dollar_figure amount the whitesells described the correct_tax treatment of this amount as recognizing the income in the appropriate year --meaning however the whitesells contended that the income in would not be allowed because the statute had closed the whitesells stated that the examiner had agreed with the whitesells’ own position during the examination the field agent changed his assessment to agree with the taxpayer on only of of the accrued expenses and now allowed dollar_figure in as an expense and agreed with the taxpayer’s proposal to report the income in the whitesells also argued that the irs had settled the case by accepting their dollar_figure million offer-in-compromise on date the court held a hearing on the irs’s motion for partial summary_judgment mr whitesell but not ms whitesell appeared at the hearing early in the hearing irs counsel likened the offer-in-compromise and assessment-timing issues to roadblocks that were impeding the resolution of this case he stated that there’s this roadblock that’s keeping us from getting any further and if we can stipulate that the only thing at issue is the net_operating_loss_deduction that’s fine after the court heard argument on the motion for partial summary_judgment irs counsel again discussed narrowing the remaining issues the the next thing i’d like to know if we can resolve on the record today is narrowing the issues the court sought to elicit the parties’ positions on which issues were in dispute irs counsel stated i believe that subject_to the uniform commercial code referring to the argument that the irs had accepted the whitesells’ offer-in- compromise see whitesell v commissioner tcmemo_2017_84 at and statute_of_limitations arguments petitioners agreed with the remaining adjustments and i would love to be able to walk out of here today knowing whether that’s a fact the court then asked mr whitesell w hat is your standing on the rest of the adjustments subject_to me making a decision on the statute_of_limitations and the ucc the uniform commercial code mr whitesell responded outside of the nold net-operating-loss deduction your honor the court answered outside of the net_operating_loss mr whitesell then stated yes we are in agreement on the other adjustments and we put that in writing too mr whitesell explained that the whitesells had put their agreement in writing in their date response to the court’s order to show cause mr whitesell also stated that the whitesells had also expressed their agreement with the adjustments other than the net-operating-loss adjustments in an earlier telephone conference held between the court and the parties on date the court issued a memorandum opinion granting the irs’s motion for partial summary_judgment whitesell v commissioner tcmemo_2017_84 the court held that the irs was not time barred from assessing 5this word erroneously appeared as judgments in the transcript income_tax attributable to flowthrough income from the three s_corporations for the whitesells’ tax_year sec_2011 and sec_2012 id at the court also held that the whitesells’ offer-in-compromise had not been accepted by the irs id at on date attorneys john w hackney and david d aughtry entered appearances for the whitesells the whitesells had hitherto been representing themselves on date the whitesells filed the present motion for leave to file an amendment to the amended petition the motion explained that the michigan case was not settled until and that under sec_1_461-2 income_tax regs refunds of contested_liabilities are included in gross_income when the contest is settled the amendment the whitesells wish to file would allege that the michigan case was not resolved until when wic and whitaker settled the michigan case the amendment would also allege the amounts wic previously paid for the whitaker j udgment and related interest amounts do not constitute gross_income to wic in or the whitesells and the irs filed additional court papers regarding the present motion on date the irs mailed a notice_of_deficiency to the whitesells for determining that there should be a dollar_figure income inclusion in wic’s income for in the notice the irs explained the notice_of_deficiency was being issued as a protective measure should the court determine in this case that the dollar_figure should not be included in wic’s income in or 2012--the years at issue in this case on date the whitesells filed a petition for redetermination of the deficiency for the case was assigned docket no in the petition the whitesells argue that the notice_of_deficiency for was untimely because it was mailed more than three years after their tax_return was filed on date william m sharp substituted his appearance for john hackney’s appearance also on date david d aughtry filed a motion to withdraw as the whitesells’ counsel the court granted this motion on date on date alexander r olama filed an entry of appearance on date james p dawson filed an entry of appearance discussion rule a provides in pertinent part a party may amend a pleading once as a matter of course at any time before a responsive pleading is served otherwise a party may amend a pleading only by leave of court or by written consent of the adverse_party and leave shall be given freely when justice so requires whether a motion seeking amendment should be allowed lies within the sound discretion of the court rule a 110_tc_172 supplemented by 110_tc_440 in determining the justice of allowing an amendment we must examine the particular circumstances in the case before us estate of quick v commissioner t c pincite we consider among other factors whether an excuse for the delay exists and whether the opposing party would suffer unfair surprise disadvantage or prejudice if the motion to amend were granted id excuse for delay the whitesells seek leave to file an amendment to their amended petition to allege that the amounts deducted for years relating to the michigan judgment are not includable in wic’s income for or they allege that they did not seek to plead this theory earlier than their date motion because they were unrepresented until date and they were overwhelmed by the tax_court process including procedural matters although it is true that during the early stages of this case the whitesells were unrepresented they were assisted by accounting and legal professionals behind the scenes robert wiese a certified_public_accountant who had represented the whitesells before the irs continued to advise them during this tax_court case wiese is an officer of whitesell corp wic and nlw holdings the whitesells were also assisted during this tax_court case by the law firm of thompson coburn the law firm’s assistance was also provided behind the scenes no one from the firm entered an appearance on date an attorney from the firm richard l lawton wrote a legal memorandum to wiese concluding that the notice_of_deficiency was invalid as to the inclusion in wic’s income for the reason lawton gave was that the irs had failed to assess tax against wic for tax_year moreover on date wiese received a second legal memorandum this time from attorneys lawton matthew i hafter and emily l jenkinson of the same law firm that memorandum concluded that the irs had accepted the dollar_figure million offer-in-compromise the whitesells incorporated these two legal memoranda into their date response to the irs’s motion for partial summary_judgment because the whitesells received assistance from wiese and the thompson coburn law firm we are not persuaded that the whitesells’ pro_se ie unrepresented status excuses their delay in raising the argument they now seek to make in their proposed amendment to amended petition surprise the irs is unfairly surprised by this new argument throughout these proceedings the whitesells have consistently explained that their disagreement with the income inclusion for the michigan judgment was founded on two theories that the period of limitation for assessment had expired for wic’ sec_2011 tax_year and that the irs had accepted their dollar_figure million offer-in-compromise in their date amended petition the whitesells explained that they disagreed with the adjustment to wic’s income because the irs failed to timely assess tax against wic in their date response to our order to show cause concerning the irs’s rule f motion the whitesells reiterated this assessment argument 6the legal memoranda were identified by petitioners in their date response as exhibits 4-p and 5-p respectively their response explained that except for the assessment and offer-in- compromise arguments they agreed with the wic adjustment determined in the notice_of_deficiency for the michigan judgment they also stated that the adjustment was correct in their date response to the irs’s motion for partial summary_judgment the whitesells reiterated their arguments that the irs had failed to assess tax against wic for and that the irs had accepted their dollar_figure million offer-in-compromise they explained that but for these arguments the correct_tax treatment of the michigan case was income_recognition for they explained that recognizing income for had been their own position during the irs examination during the date hearing mr whitesell assured the court that they had no arguments in this case other than the assessment argument the offer-in-compromise argument and the net-operating-loss deductions argument until the whitesells filed the instant motion the irs was unaware of the whitesells’ argument that the proper year for inclusion i sec_2013 rather than the irs is unfairly surprised prejudice we also conclude that the irs would be unfairly prejudiced by the proposed amendment the proposed amendment alleges that the income inclusion relating to the michigan case should be made if ever for the tax_year but the whitesells do not dispute the irs’s claim that the three-year period for assessment has ended as to their tax_year in determining the potential for unfair prejudice the question is whether allowing a party to add a new issue by a later amendment rather than inclusion in the initial pleading works an unfair disadvantage to the other party ax v commissioner 146_tc_153 the issue the whitesells wish to raise is the argument that was the only year for which there should be an income inclusion had they made this argument in their amended petition which was filed in date the irs could have made an assessment for the tax_year but if the whitesells are allowed to file their amendment to raise the issue sec_6501 provides that an assessment must be made within three years after the date the relevant return was filed if the timing of the whitesells’ filing of their income_tax return for was similar to their timing for the and returns that would mean that they filed their return in date that would mean that the three-year period for assessment expired in date 8to assess a deficiency for the irs must mail a notice_of_deficiency continued now the irs would be prejudiced because the three-year period for assessing the tax for has ended cf steiner v commissioner tcmemo_1995_122 the irs issued a notice_of_deficiency for the tax_year determining that a conversion of stock occurred in in the taxpayers filed a petition agreeing that the conversion occurred in the taxpayers later sought to amend their petition to allege that the conversion occurred in the court allowed the amendment because among other reasons the three-year period for assessment for the year was already closed when the taxpayers had filed their petition therefore even if the irs had known of the taxpayers’ new_theory that the conversion occurred in when the petition was filed the irs would still have had to rely on the six-year period for assessment because the three-year period had expired continued for as it did in date see sec_6213 the notice_of_deficiency suspends the running of the period for assessment sec_6503 but the notice_of_deficiency must be issued before the end of the period for assessment sec_6213 9although there are exceptions to the three-year period for assessment such as for example where the taxpayer omit sec_25 of gross_income from the return see sec_6501 it would prejudice the irs for it to have to prove the applicability of an exception the whitesells do not suggest that mitigation under sec_1311 would be available so we do not address it we conclude that justice does not require that the whitesells be permitted to file their amendment to amended petition see rule a dollar_figure to reflect the foregoing an order will be issued denying petitioners’ date motion for leave to file amendment to amended petition as supplemented 10the irs also argues that permission to amend the amended petition should be denied on the ground that the whitesells judicially admitted that the dollar_figure in income was properly included for we need not reach this argument


department of the treasury internal_revenue_service washington d c date number release date cc tege eoeg et1 - genin-106537-03 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit from subject office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-106537-03 railroad retirement act tax status in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business is not an employer under the railroad retirement act and the railroad unemployment insurance act we have reviewed the opinion of the rrb and based upon the information submitted to the rrb we also conclude that is not an employer under the railroad_retirement_tax_act please take the appropriate action regarding this business will e mcleod cc


t c memo united_states tax_court henry craig jenkins petitioner v commissioner of internal revenue respondent docket no filed date henry craig jenkins pro_se john f driscoll and marshall r jones for respondent memorandum opinion chiechi judge this case is before the court on respondent’s motion for summary_judgment respondent’s motion the court will grant respondent’s motion background pursuant to the court’s order issued under rule c all of the affirmative allegations in the answer are deemed admitted petitioner resided in alabama at the time he filed the petition during and petitioner owned and operated a business known as jenkins savings system petitioner’s business or jenkins an s_corporation although petitioner’s spouse did not receive any compensation from petitioner’s business petitioner fraudulently submitted a paystub to a bank in connection with a loan application in which he falsely indicated that she received compensation from that business petitioner filed a federal_income_tax tax_return for each of his taxable years return and return he did not file his return until date after respondent had commenced respondent’s examination of his return and his return on date in petitioner’s return and his return respectively petitioner showed taxable_income of dollar_figure and dollar_figure and total_tax of dollar_figure and dollar_figure 1all rule references are to the tax_court rules_of_practice and procedure all section references are to the internal_revenue_code code in effect for the years at issue in schedule e supplemental income and loss of his return schedule e and his return schedule e petitioner fraudulently failed to report income of dollar_figure and dollar_figure respectively that is taxable to him as the owner of his s_corporation jenkins included in those respective amounts of unreported taxable_income are unreported gross_receipts of dollar_figure and dollar_figure of jenkins for its taxable years and respectively that petitioner fraudu- lently failed to report for jenkins in form_1120s u s income_tax return for an s_corporation that petitioner filed for jenkins for each of its taxable years form_1120s and form_1120s he fraudulently treated certain nondeductible personal expenses as deductible business_expenses in each of the form_1120s and the form_1120s that petitioner filed for jenkins petitioner fraudulently overstated deductible commission expenses by giving to felicia langford ms langford a loan processor whom he employed certain checks that were made payable to her and that petitioner required ms langford to cash and to deposit the cash from those checks into his spouse's bank account when in fact his spouse did not earn any deductible commissions from jenkins during and the fraudulent omissions of income by petitioner’s business and thus by him and the fraudulent overstatements of deductions by that business and thus by him for taxable years and discussed above are part of a two-year pattern of petitioner’s intent to evade taxes respondent issued a notice_of_deficiency notice to petitioner with respect to his taxable years and in that notice respondent determined inter alia that petitioner has respective increases in taxable_income reported in his schedule e and his schedule e of dollar_figure and dollar_figure and respective decreases in sec_179 expense deductions claimed in his schedule e and his schedule e of dollar_figure and dollar_figure as a result of those determinations and certain other determinations to decrease certain itemized_deductions and exemptions that petitioner claimed for his respective taxable years and respondent determined that petitioner has deficiencies in and underpayments of tax for those years of dollar_figure and dollar_figure respectively respondent further determined in the notice that each of those deficiencies and underpayments is attributable to fraud and that petitioner is liable for each of his taxable years and for the fraud_penalty under sec_6663 2respondent determined in the notice as an alternative to respondent’s determination to impose the fraud_penalty under sec_6663 for each of petitioner’s taxable years and to impose the accuracy-related_penalty under sec_6662 for each of those years respondent also determined in the notice that petitioner is liable for his taxable_year for the addition_to_tax under sec_6651 for filing his return late on date in the petition petitioner alleged that he disagrees with the deficiency and unreported income determinations that respondent made in the notice petitioner fraudulently understated the total_tax shown in his return and his return by dollar_figure and dollar_figure respectively those respective deficien- cies in and underpayments of tax for petitioner’s taxable years and are due to petitioner’s intent to evade tax and to fraud on his part discussion the court may grant summary_judgment where there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law rule b 98_tc_518 aff’d 17_f3d_965 7th cir all of the facts on which respondent relies in respondent’s motion have been deemed admitted pursuant to rule c the facts deemed admitted include the material facts on which the court may proceed to resolve the issues in respon- dent’s motion including the issue relating to the fraud penalties under sec_6663 see eg 77_tc_334 the court concludes that there are no genuine disputes of material fact regarding the issues raised in respondent’s motion the court gave petitioner the opportunity to inform the court by filing a response to respondent’s motion why he believes that motion should be denied he failed to file a response to respondent’s motion with respect to respondent’s determinations that petitioner has a deficiency in tax for each of his taxable years and on the record before the court the court sustains those determinations with respect to respondent’s determination that petitioner is liable for his taxable_year for the addition_to_tax under sec_6651 the record establishes that petitioner did not file his return until date after respondent had commenced respondent’s examination of petitioner’s return and his return on date on the record before the court the court finds that respondent has satisfied the burden of production under sec_7491 on that record the court further finds that petitioner has failed to carry his burden of establishing that he is not liable for his taxable_year for the addition_to_tax under sec_6651 see 116_tc_438 with respect to respondent’s determinations that petitioner is liable for the fraud_penalty under sec_6663 for each of his taxable years and sec_6663 imposes a penalty equal to percent of the portion of any underpayment that is attributable to fraud for purposes of sec_6663 if the commissioner of internal revenue commissioner establishes that any portion of an underpayment is attributable to fraud the entire underpayment is to be treated as attributable to fraud except with respect to any portion of the underpayment that the taxpayer establishes by a preponderance_of_the_evidence is not attributable to fraud sec_6663 in order for the fraud_penalty to apply the commissioner must prove by clear_and_convincing evidence sec_7454 rule b that an underpayment exists and that some portion of such underpayment is attributable to fraud eg 99_tc_202 to prove the existence of an underpayment the commissioner may not rely on a taxpayer’s failure to carry his or her burden_of_proof with respect to the underlying deficiency e g 94_tc_654 the commissioner must prove only that an underpayment exists and not the precise amount of the underpayment e g 96_tc_858 aff’d 959_f2d_16 2d cir the record establishes that petitioner filed tax returns that substantially understated taxable_income and total_tax for each of his taxable years and on the record before the court the court finds that respondent has established by clear_and_convincing evidence that there is an underpayment_of_tax for each of those taxable years in order to prove fraudulent intent the commissioner must prove by clear_and_convincing evidence that the taxpayer intended to evade tax which the taxpayer believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection of such tax e g parks v commissioner t c pincite the existence of fraud is a question of fact to be resolved upon consideration of the entire record e g dileo v commissioner t c pincite fraud is never presumed or imputed and should not be found in circumstances which create at most only a suspicion e g 92_tc_661 direct evidence of the requisite fraudulent intent is seldom available e g id consequently the commissioner may prove fraud by circumstantial evidence e g 80_tc_1111 the courts have identified a number of so-called badges_of_fraud from which fraudulent intent may be inferred including the understatement of income the failure to maintain adequate_records as required by the code and the regulations providing incomplete or erroneous information to a tax_return_preparer or bookkeeper dealing in cash acts designed to conceal income and engaging in illegal activity see 796_f2d_303 9th cir aff’g tcmemo_1984_601 449_f2d_311 9th cir aff’g per curiam tcmemo_1969_48 niedringhaus v commissioner t c pincite although no single factor is necessarily sufficient to establish fraud the existence of several indicia constitutes persuasive circumstantial evidence of fraud e g petzoldt v commissioner t c pincite the record establishes the following as facts during and petitioner owned and operated jenkins an s_corporation although petitioner’s spouse did not receive any compensation from petitioner’s business petitioner fraudulently submitted a paystub to a bank in connection with a loan application in which he falsely indicated that she received compensation from that business petitioner filed a tax_return for each of his taxable years and in petitioner’s return and his return respectively petitioner showed taxable_income of dollar_figure and dollar_figure and total_tax of dollar_figure and dollar_figure in his schedule e and his schedule e petitioner fraudulently failed to report income of dollar_figure and dollar_figure respectively that is taxable to him as the owner of his s_corporation jenkins included in those respective 3petitioner did not file his return until date after respondent had commenced respondent’s examination of his return and his return on date amounts of unreported taxable_income are unreported gross_receipts of dollar_figure and dollar_figure of jenkins for its taxable years and respectively that petitioner fraudulently failed to report for jenkins in the form_1120s and the form_1120s that petitioner filed for jenkins he fraudulently treated certain nondeductible personal expenses as deduct- ible business_expenses in each of the form_1120s and the form_1120s that petitioner filed for jenkins petitioner fraudulently overstated deductible commission expenses by giving to ms langford a loan processor whom he employed certain checks that were made payable to her and that petitioner required ms langford to cash and to deposit the cash from those checks into his spouse's bank account when in fact his spouse did not earn any deductible commissions from jenkins during and the fraudulent omissions of income by petitioner’s business and thus by him and the fraudulent overstatements of deductions by that business and thus by him for taxable years and discussed above are part of a two-year pattern of petitioner’s intent to evade taxes petitioner fraudulently understated the total_tax shown in his return and his return by dollar_figure and dollar_figure respectively those respective deficiencies in and underpayments of tax for petitioner’s taxable years and are due to petitioner’s intent to evade tax and to fraud on his part on the record before the court the court finds that respondent has estab- lished by clear_and_convincing evidence that petitioner intended to evade tax for each of his taxable years and which he believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection of such tax on the record before the court the court sustains respondent’s determina- tions that petitioner is liable for the fraud_penalty under sec_6663 for each of his taxable years and the court has considered all of the contentions and arguments of petitioner that are not discussed herein and the court finds them to be without merit irrele- vant and or moot on the record before the court the court will grant respondent’s motion to reflect the foregoing an order granting respondent’s motion and decision for respondent will be entered


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 fip b02 plr-132125-16 date date legend taxpayer ------------------------------------------------------------ ---------------------------------------------------------- fund ----------------------------------------------------------------- dear --------------- this letter revokes a part of plr plr-142235-09 issued to taxpayer regarding fund on date in plr the internal_revenue_service the service issued rulings that i income and gain from certain commodity-linked notes constitute qualifying_income under sec_851 the cln ruling and ii subpart_f_income of the subsidiary attributable to fund is other income derived from fund’s business of investing in stock securities or currencies and therefore constitutes qualifying_income under sec_851 the subpart_f ruling in a letter dated date the service notified taxpayer that it was considering revoking the cln ruling since issuing plr the service has determined that having provided a private_letter_ruling on the issue in the cln ruling is not in accord with the current views of the service see revproc_2016_50 2016_43_irb_522 superseded by revproc_2017_3 i r b sec_4 see also reg-123600-16 fed reg date section dollar_figure of revproc_2017_1 2017_1_irb_1 provides in part that unless it was part of a closing_agreement a letter_ruling found to be in error or not in accordance with the current views of the service may be revoked or modified accordingly the cln ruling in plr is revoked the subpart_f ruling is not revoked and that portion of plr remains in effect at this time plr-132125-16 section dollar_figure of revproc_2017_1 also provides that if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations on assessment unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation to date taxpayer has not responded to the date letter from the service with a request for relief under sec_7805 therefore the revocation of the cln ruling in plr applies retroactively to all years open under the statute_of_limitations on assessment as of the date of this letter and to all future years we are sending a copy of this letter to the appropriate operating division sincerely andrea m hoffenson andrea m hoffenson branch chief branch office of associate chief_counsel financial institutions and products