Opinion ID: 374699
Heading Depth: 1
Heading Rank: 3

Heading: the austin, texas property

Text: 21 Taxpayers also claim that the Tax Court erred in holding that a loss sustained by them on the sale of certain property located in Austin, Texas was a capital loss. Taxpayers contend that the parties stipulated that the loss was an ordinary loss and that the Tax Court erred by failing to give effect to the stipulation. Alternatively, taxpayers argue that even if the stipulation did not establish the character of the loss, they are entitled to an ordinary loss deduction because the Commissioner did not give them adequate pre-trial notice that he was contesting the character of the loss.
22 On Schedule D, Part III (entitled Property Other than Capital Assets) of their 1969 income tax return, taxpayers claimed a loss of $27,600 on the sale of property located in Austin, Texas. In his deficiency notice for 1969, the Commissioner stated that he intended to disallow the loss deduction because it has not been established that any deductible loss was sustained. 23 At trial, the parties entered into a stipulation concerning the property. Immediately prior to the stipulation, taxpayers' attorney was questioning taxpayers' son about the cost of the Austin property. Taxpayers' attorney stated to the court that if they were given a few minutes, he believed that he and the attorney for the Commissioner would be willing to stipulate what these lots cost . . . . The court then granted a recess in order to allow the attorneys time to agree to a stipulation. 24 When court resumed, the attorney for the Commissioner directed the court's attention to Schedule D, Part III of taxpayers' 1969 tax return where taxpayers had claimed the loss of $27,600 on the sale of the Austin property. The attorney for the Commissioner then announced that (t)he parties stipulate that the correct loss on that property was $16,457.37. Both sides then confirmed that that was the stipulation. There was no further discussion at trial of the loss on the Austin property. 25 The Tax Court held the loss on the Austin property was a capital loss because there was little or no evidence to contradict the Commissioner's position that the property was a capital asset. Asserting that the court had misconstrued the stipulation, taxpayers filed a motion for reconsideration of the court's opinion. The Tax Court denied the motion without opinion.
26 We reject taxpayers' contention that the Tax Court erred in interpreting the stipulation to cover only the fact and amount of the loss and not whether the loss was ordinary or capital. Although the stipulation is not a model of clarity, the context in which it was made more than adequately supports the construction given it by the Tax Court. The discussion prior to the recess during which the stipulation was agreed upon concerned only the cost of the property. Moreover, taxpayers' attorney himself stated that he sought a stipulation only as to what the lots cost. When viewed in this context, the fact that prior to announcing the stipulation, the attorney for the Commissioner directed the court's attention to the portion of taxpayers' return where they had claimed the loss as a non-capital loss simply does not adequately support a conclusion that the parties stipulated as to the character of the loss. 27 We also reject taxpayers' second contention. Taxpayers argue that they were not given adequate pre-trial notice that the Commissioner was contesting the character, as well as the fact and amount, of the loss on the Austin property. Hence, they contend that when the parties stipulated as to the fact and amount of the loss, taxpayers satisfied their burden of proving that they were entitled to an ordinary deduction. 28 It is true that the deficiency notice simply stated that the loss was not allowable because it has not been established that any deductible loss was sustained. In addition, the record does not indicate that the Commissioner ever explicitly informed taxpayers before trial that he was relying in part on the capital character of the loss in sustaining the deficiency determination. 29 Although the information the Commissioner provided taxpayers may fall somewhat short of the spirit of good pleading, the deficiency notice adequately informed taxpayers that every aspect of the deductibility of the loss was in issue. While a different result may possibly obtain when the Commissioner pinpoints the reason for his determination, see Helvering v. Wood, 309 U.S. 344, 349, 60 S.Ct. 551, 553, 84 L.Ed. 796 (1940), when the determination is made in general and indefinite terms, the taxpayer is reasonably placed on notice that the basic elements of a claimed deduction, including its fact, amount and character, are in dispute. See Sorin v. Commissioner, 29 T.C. 959, 969 (1958), aff'd, 271 F.2d 741 (2d Cir. 1959). The burden then shifts to the taxpayer to prove all aspects of the loss and overcome the presumptive correctness of the Commissioner's determination. See, e. g., C. A. White Trucking Co. v. Commissioner, 601 F.2d 867, 869 (5th Cir. 1979); Brimberry v. Commissioner, 588 F.2d 975, 977 (5th Cir. 1979). Since taxpayers failed to present any evidence as to the character of the loss incurred on the sale of the Austin property, the Tax Court properly sustained the Commissioner's determination that the loss was capital.