Opinion ID: 812551
Heading Depth: 2
Heading Rank: 3

Heading: Autumn Years

Text: Plotkin had no partnership interest in Autumn Years. Autumn Years’s partners included: (1) Plotkin’s three children, who each owned a 25-percent interest; (2) Eva Sue Faenger, Plotkin’s girlfriend between 1985 and 1990, who owned a 20-percent interest; (3) Lynn Plotkin, Plotkin’s former wife, who owned a 4-percent interest; (4) KSFS, which owned a 0.8-percent interest; and (5) Medigroup Care Centers, Inc. (another company related to Medigroup Enterprises), and Management and Development Associates, Inc. (of which Plotkin was the sole shareholder), which each owned .1-percent interests. As of 4 Case: 12-10620 Date Filed: 11/27/2012 Page: 5 of 17 January 2001, neither Lynn Plotkin nor Plotkin’s three children were aware that they were members of the partnership. Plotkin never drafted financial statements, filed partnership tax returns, or observed other partnership formalities with respect to Autumn Years. Plotkin nevertheless treated the funds deposited into Autumn Years’s accounts as his own. On numerous occasions, Plotkin wrote himself checks on Autumn Years’s accounts to pay personal expenses. Plotkin also wrote checks to cover living expenses for his daughter while she was away at college and to pay Lynn Plotkin’s mortgage. During the years at issue, Plotkin did not maintain bank accounts or other financial accounts in his own name D. 1990-1994 Payments Made to Autumn Years and Quixoti In 1990, Plotkin helped his girlfriend, Faenger, incorporate Professional TLC, Inc. (“Professional TLC”) by drafting and filing its articles of incorporation. Because Faenger had experience operating a nursing home, she and Plotkin decided that Professional TLC would lease the Rolla nursing home from RHCA. Plotkin determined the amount of rent Professional TLC would pay to RHCA ($45,000 a month, with yearly increases of $425), and Plotkin was the only person Faenger dealt with before she signed the lease. During the course of the lease, Professional TLC paid its rent, but not 5 Case: 12-10620 Date Filed: 11/27/2012 Page: 6 of 17 always to RHCA. Both Plotkin and Lavender personally instructed Faenger where to direct Professional TLC’s rent payments, and over the years, some of the rent payments were funneled or paid directly to certain business entities. As a result, between 1991 and 1994, Professional TLC made some rent payments directly to Autumn Years. Plotkin endorsed other checks written to RHCA over to Autumn Years. Some of Professional TLC’s rent payments were made to KSFS and then redirected to Autumn Years by wire or by check. In addition to receiving funds from Professional TLC and KSFS, Autumn Years also received funds from La Mancha Properties, Inc. (“La Mancha”), a corporation that was incorporated by Lavender and had financial ties to RHCA. La Mancha received payments from both RHCA and KSFS. Some of Professional TLC’s rent payments also ended up with Quixoti Corp. (“Quixoti”), a corporation owned by Plotkin. E. 1995 Sale of the Rolla Nursing Home In 1995, RHCA sold the Rolla nursing home for $4.2 million. Prior to the sale, Plotkin’s then-girlfriend, Barbara Nemec, expressed an interest in trying to find a buyer for the home. Nemec was a registered dietician with no real estate experience, but her brother previously owned a brokerage business. Nemec formed LTC Brokers & Consultants, Inc. (“LTC”), and hired her brother to help 6 Case: 12-10620 Date Filed: 11/27/2012 Page: 7 of 17 sell the Rolla nursing home. RHCA and LTC executed several documents authorizing LTC to act as RHCA’s agent for purposes of selling the Rolla nursing home. The documents authorized LTC to receive a base commission of ten percent, plus additional allowances totaling four percent. According to Lavender, Plotkin wanted LTC to receive an increased commission because Plotkin intended to receive his share of the sale’s proceeds from LTC’s commission. The Rolla nursing home eventually sold, and LTC received $588,000 in commission in July 1995. LTC then purchased a property in Umatilla, Florida, and, within months, title to that property was transferred to Nemec. She and Plotkin eventually moved into a home on the property, where they lived together through the time of the Tax Court proceedings. F. Plotkin’s Loan from American Bank During the course of Plotkin’s relationship with Faenger (i.e., between 1985 and 1990), they bought land in Rolla, Missouri. Plotkin made a $44,000 down payment on the land, although it was titled in Faenger’s name. Plotkin and Faenger borrowed $425,000 from the American Bank of Rolla (“American Bank”) to build a house on the land. Plotkin made the payments on this loan. Following the sale of the Rolla nursing home in 1995, RHCA made a 7 Case: 12-10620 Date Filed: 11/27/2012 Page: 8 of 17 $245,000 payment to American Bank. Plotkin used proceeds from the sale of the Rolla nursing home to pay off the remaining liability on the $425,000 loan that he and Faenger had taken out to build the house in Rolla. G. Plotkin’s Criminal Convictions In 1999, following a bench trial, the district court convicted Plotkin of three counts of willfully making and subscribing false income tax returns under Internal Revenue Code (“I.R.C.”) § 7206(1). The district court found that, during 1991, 1992, and 1993, Plotkin received and failed to report substantial income from the Rolla nursing home. The court observed that Plotkin had treated funds from the nursing home as his personal income, but had not reported it as such. The district court expressly found that Plotkin’s testimony at trial was not credible. It rejected Plotkin’s argument that the funds used to pay his personal expenses were partnership distributions to Autumn Years’s limited partners. The district court explained that Autumn Years “was a sham,” noting that it was not treated as a “true partnership.” Specifically, the district court found that no partnership formalities were observed, and the purported distributions were not made in accordance with the partnership agreement or the law of partnerships. In sum, the district court found that Plotkin willfully and falsely reported his income for the years 1991, 1992, and 1993. Plotkin was sentenced to five years of 8 Case: 12-10620 Date Filed: 11/27/2012 Page: 9 of 17 probation. H. Tax Court Proceedings and Opinion In April 2008, the Internal Revenue Service (“IRS”) issued a notice of deficiency to Plotkin for the years 1991 through 1995. In the notice, the IRS determined, inter alia, that Plotkin had received and failed to report (on Schedule C) self-employment income of $302,319 in 1991, $172,081 in 1992, $138,490 in 1993, $135,611 in 1994, and $805,246 in 1995.2 Based on this unreported income, the IRS further determined Plotkin had income tax deficiencies of $108,652, $61,885, $52,397, $45,490, and $320,852 for the years 1991 through 1995, respectively. Plotkin filed a petition for redetermination of his tax deficiencies in the Tax Court. Plotkin also filed a motion to dismiss the IRS’s underlying notice of deficiency for lack of jurisdiction, arguing that the notice was untimely and invalid. The Tax Court denied Plotkin’s motion, and the petition proceeded to trial. After a trial, the Tax Court entered a memorandum opinion and judgment in 2 A taxpayer who owned or operated a business completes Schedule C, Profit or Loss from Business, of IRS Form 1040 as part of his income tax filing to show the income and deductible expenses of the taxpayer’s business for the tax year. See Rodriguez v. Comm’r, T.C.M. (RIA) 2012-286, at . 9 Case: 12-10620 Date Filed: 11/27/2012 Page: 10 of 17 favor of the IRS. As relevant here, the Tax Court concluded that the IRS had properly included payments made to the accounts of Autumn Years and Quixoti in Plotkin’s Schedule C income for the years 1991 through 1994. The Tax Court found that those payments were income to Plotkin because they were paid “as a result of his work in carrying on the business of RHCA and related entities.” Specifically, the Tax Court found that Plotkin had a significant amount of control over RHCA and that he was integral to its operation; in addition to actively carrying on the major business of RHCA, Plotkin had instructed Lavender, then the sole officer of Rolla Health Care, on how to use funds from the sale of the Rolla nursing home. The Tax Court observed that Plotkin had used funds from RHCA’s sale of the Rolla nursing home to pay off his personal obligation to American Bank. In this regard, the Tax Court concluded that the IRS had properly included in Plotkin’s Schedule C income for the 1995 year $217,246 that was paid by RHCA to American Bank following the sale of the Rolla nursing home. The Tax Court noted that Plotkin had not offered any evidence demonstrating how that money had otherwise been used, nor had he offered any evidence indicating that he personally paid off his American Bank loan with other funds. The Tax Court rejected Plotkin’s argument that the funds paid to Autumn 10 Case: 12-10620 Date Filed: 11/27/2012 Page: 11 of 17 Years and Quixoti should not be included in his income because these funds were partnership distributions. The Tax Court explained that Plotkin was neither a partner in Autumn Years nor RHCA. Moreover, as noted above, the Tax Court found that the payments were made as a result of Plotkin’s “work in carrying on the business of RHCA and related entities,” and that they were not distributions. The Tax Court entered a decision in the IRS’s favor. Plotkin now appeals.