Court Opinion

ID: 9394547
Source: CourtListenerOpinion
Date Created: 2023-05-15 19:01:16.869322+00
Date Added: 2024-06-11T17:19:00.877269
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-60

            BENJAMIN SOLEIMANI AND SHARYN SOLEIMANI,
                           Petitioners

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 8884-13.                                             Filed May 15, 2023.

                                     —————

Carlos F. Ortiz, Mayling C. Blanco, and Matthew D. Lee, for petitioners.

Shawna A. Early, Lydia A. Branche, and Marc L. Caine, for respondent.

            MEMORANDUM FINDINGS OF FACT AND OPINION

       GALE, Judge: Respondent determined a deficiency in petitioners’
2007 federal income tax of $414,193 and a section 6662(a) accuracy-
related penalty of $82,839. 1 Petitioners resided in New York when they
timely filed a Petition seeking a redetermination of the deficiency. The
issue for decision is whether petitioners are entitled to long-term capital
loss deductions relating to three parcels of real property allegedly
confiscated by the Iranian government. 2

        1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Dollar amounts have been rounded to the nearest dollar.
        2 The deficiency at issue arises from respondent’s disallowance of a $2,725,000

long-term capital loss deduction from the confiscation claimed on petitioners’ 2007
federal income tax return, and computational adjustments related to that

                                 Served 05/15/23
                                               2

[*2]                              FINDINGS OF FACT

      The parties filed Stipulations of Facts and accompanying
Exhibits, which we incorporate by this reference.

Petitioner-Husband’s Experience with Iran

      Petitioner-husband (petitioner) was born in Iran but left in the
early 1960s and immigrated to the United States. He became a
permanent resident of the United States in 1964 and began filing U.S.
federal income tax returns that year. Petitioner returned to Iran once
around 1976. During this visit he was detained for approximately 30
days. This was the last time he had been in Iran as of the time of trial.

        Following an Islamic revolution in 1978 and 1979, Shah
Mohammad Reza Pahlavi (Shah) was ousted from power, and the
Islamic Republic of Iran was proclaimed on April 1, 1979. Iranians
affiliated with the Shah’s regime were subject to imprisonment, arrest,
and execution. Petitioner and his family were considered supporters of
the Shah, and petitioner was deemed a deserter at the beginning of the
Islamic Revolution. Petitioner maintains that since his trip around 1976
he has been unable to travel to Iran because he fears abduction,
imprisonment, or execution were he to return.

History of Allegedly Expropriated Properties

      Petitioner claims that three unimproved parcels of real estate in
Tehran, Iran (Iranian properties), were purchased by his uncle on his
behalf and registered under his name in 1976, 1977, and 1978,
respectively. Petitioner claims that these properties were purchased for
180 million rials ($2,608,695), 3 110 million rials ($1,594,202), 4 and 95

disallowance. Petitioners subsequently filed an amended return on which the claimed
long-term capital loss deduction from the confiscation was increased to $5,579,708,
entitling them to a refund. Respondent denied the refund claim simultaneously with
the issuance of the notice of deficiency.
        In their Petition, petitioners also claim that petitioner Sharyn Soleimani is
entitled to relief under section 6015, but they made no mention of that claim at trial
or on brief and are deemed to have abandoned it.
         3   At this time, the official rate of exchange for one U.S. dollar was 70.35 Iranian
rials.
         4   At this time, the official rate of exchange for one U.S. dollar was 70.48 Iranian
rials.
                                               3

[*3] million rials ($1,376,811), 5 respectively. According to petitioner, he
learned of these purchases during a trip to London in 1981. At that
time, he claims, his uncle told him the general location of each property
and advised petitioner that he could obtain specifics for each property at
the registry of deeds in Tehran. According to petitioner, the Iranian
properties were undeveloped and he made no improvements to them.

       Petitioner testified that in approximately 2006 he became
interested in selling the Iranian properties. He sought the help of a
friend, Witness 1. 6 Witness 1 lived in the United States but maintained
contacts in Iran and frequently traveled there. On petitioner’s behalf,
Witness 1 made a series of inquiries regarding title to the Iranian
properties. Petitioner claims that through that process Witness 1
confirmed that the Iranian properties were still titled in petitioner’s
name. According to petitioner, in 2007, while in the process of trying to
sell the Iranian properties, he was contacted by a real estate broker
hired by Witness 1. This real estate broker allegedly claimed to have
discovered that at some point during 2007, title to the properties had
been changed from petitioner to the Iranian government.

       Petitioner claims that in an effort to ascertain the ownership
status of the properties, he agreed that Witness 1 would retain the
services of Mohammad Ali Soltanpour, an Iranian attorney. According
to petitioner, and confirmed by Witness 1 in his testimony, Witness 1
secured the services of and communicated with Mr. Soltanpour. While
petitioner testified that he never met with or spoke to Mr. Soltanpour,
Witness 1 testified that Mr. Soltanpour accompanied him to inspect the
three properties and thereupon agreed to attempt to obtain records
documenting their confiscation by the Iranian government.
Mr. Soltanpour thereafter allegedly obtained from Iranian officials a
document from the “State Organization for the Registration of Deeds
and Real Estates,” dated September 24, 2008 (Registration), and a
“Declaration Sheet” from the “Justice Administration of the Islamic
Republic of Iran (Central Branch),” dated October 16, 2008
(Declaration). Both documents described the Iranian properties as

         5   At this time, the official rate of exchange for one U.S. dollar was 70.48 Iranian
rials.
         6 Witness 1 testified without concern about revealing his identity in the initial

trial proceedings. However, in a subsequent trial proceeding he maintained that any
disclosure of his identity and role in assisting petitioner might subject him to reprisals
from Iranian officials. We exercised our discretion to seal those portions of the record
that might further reveal his identity.
                                   4

[*4] having been acquired by petitioner in December 1976, November
1977, and April 1978, respectively. The documents each further
recounted that the properties had been confiscated by the Islamic
Republic of Iran through a verdict of the Islamic Revolutionary Court
and new title deeds issued accordingly. The Declaration further stated
the values of each property in Iranian rials and U.S. dollars. The
Declaration also noted that it had been issued at the request of
Mohammad Ali Soltanpour, attorney for petitioner, and gave Mr.
Soltanpour’s bar license number and address.

       According to petitioner and Witness 1, Mr. Soltanpour gave the
Declaration to Witness 1, who in turn gave it to petitioner. According to
petitioner, Mr. Soltanpour discovered that petitioner’s properties were
confiscated by the Islamic Republic of Iran pursuant to an order issued
by the 16th Branch of the Islamic Revolutionary Court under
No. 87/D/5614 on April 15, 2007. Petitioner claims that this order was
thereafter approved on June 9, 2007, by the Special First Branch of the
Special Court for Investigating Article 49 of the Constitution of the
Islamic Republic of Iran. The Declaration provides both the basis for
the confiscation order and a description of the confiscated properties.

Examination of 2007 Return

      Petitioners filed a joint federal tax return for 2007 in which they
claimed the $2,725,000 long-term capital loss deduction previously
noted and subsequently filed an amended return that increased the
amount to $5,579,079. They allege the loss arose from the expropriation
by the Iranian government of the Iranian properties in 2007.

      The 2007 return was examined and the claimed capital loss
deduction was proposed to be disallowed. The revenue agent conducting
the examination also made an initial determination that the substantial
understatement penalty described in section 6662(d) should be imposed.
She prepared a Civil Penalty Approval Form in order to obtain her
supervisor’s approval of the penalty’s imposition. In the box on the Form
labeled “Reason(s) for Non-Assertions of Penalty(s)” she wrote: “The
agent as [sic] considered and applied substantial understatement
penalty per Section 6662.” The box on the Form labeled “Reason(s) for
Assertions of Penalty(s)” was left blank. Below these boxes was a box
labeled “Group Manager Approval to Assess Penalties Identified Above”
with a signature line labeled “Group Manager Signature.” The
signature of the revenue agent’s immediate supervisor, a group
manager, appears on the signature line and is dated February 9, 2012.
                                    5

[*5] On that same day the group manager also signed the so-called 30-
Day Letter advising petitioners of the proposed changes to their 2007
return and of the penalty under section 6662, and the letter was mailed
that day to petitioners.

       The aforementioned Civil Penalty Approval Form also included a
table listing “Penalties Requiring Group Manager Approval,” a list of
penalties     thereunder    that    included    “6662(d)     Substantial
Understatement,” and a vertical column titled “Assert Penalty Yes No”
with boxes adjacent to each penalty allowing “Yes” or “No” to be marked.
The revenue agent marked both “Yes” and “No” in the boxes adjacent to
the “6662(d) Substantial Understatement” entry. Every other penalty
listed on the Form had only the “No” box adjacent to it checked.

      Respondent subsequently issued a notice of deficiency
determining that petitioners had not established entitlement to the loss
deduction claimed on the 2007 return and were liable for a section 6662
penalty. Respondent also simultaneously rejected petitioners’ claim for
refund on the amended return.

Trial Proceedings

       At trial petitioners introduced the Registration and the
Declaration to substantiate their claimed capital loss deduction.
Petitioners also introduced the report of an expert witness which
concluded that, on the basis of the expert’s experience in the practice of
Iranian law, the Registration and the Declaration substantiated that
the Iranian properties were expropriated by the Iranian government in
2007.

      After trial, the Court reviewed the Registration and the
Declaration, including comparing the legal description of the subject
properties therein with judicially noticed maps of Tehran, Iran. A
comparison of those maps and the Iranian documents’ property
descriptions revealed several apparent, significant discrepancies.

       The Court directed petitioners to file a report addressing these
discrepancies. In response petitioners—without leave of Court or
compliance with Rule 143(g)—submitted a supplemental expert report
prepared by their expert witness in which he offered explanations for
the apparent discrepancies. Given the prejudice to respondent of the
Court’s considering petitioners’ additional expert testimony without
cross-examination or any other opportunity for rebuttal, the Court
                                          6

[*6] conferred with the parties and proposed that respondent be
permitted to engage his own expert. The parties agreed.

       Respondent engaged an expert and submitted his report.
Respondent’s expert’s report concluded inter alia that Mohammad Ali
Soltanpour was a fictitious person. He visited the addresses listed for
Mr. Soltanpour in Tehran; no one at those addresses had any knowledge
of anyone by that name. He tried the phone numbers listed for
Mr. Soltanpour and encountered the same. Finally, he researched
Iranian Bar Association listings and found no entry for anyone by that
name. Indeed, the bar number given for Mr. Soltanpour on the
Declaration had never been issued to anyone, according to Iranian Bar
Association records. The Report further concluded that the Registration
and the Declaration were forgeries because, inter alia, they were
purportedly issued to a nonexistent Iranian attorney with a fictitious
bar number, they stated property values in U.S. dollars, and two of the
properties referenced in the documents as owned by petitioner before
their confiscation by the Iranian government could in fact be traced in
Iranian property records, and those records showed that the properties
had at no time been owned by petitioner or the Iranian government.
(Respondent’s expert was unable to find any records pertaining to the
third property.)

       A supplemental trial was conducted to afford petitioners an
opportunity to cross-examine respondent’s expert and to receive
additional evidence pertaining to the apparent discrepancies identified
in respondent’s expert’s report.

                                    OPINION

       In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears the
burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). The taxpayer bears the burden of proving entitlement
to any deduction or credit claimed. Segel v. Commissioner, 89 T.C. 816,
842 (1987). 7

        7 Although petitioners contend in their opening brief that the burden of proof

should shift to respondent pursuant to section 7491(a), as more fully discussed
hereinafter, they have failed to introduce any “credible evidence” as provided in that
section with respect to any factual issue underlying their capital loss claim.
Accordingly, the burden of proof does not shift to respondent.
                                    7

[*7] The issue for decision is whether petitioner suffered losses from
expropriation in the year claimed. Losses sustained during the taxable
year for which no compensation is received may be deducted under
section 165(a). However, in the case of individuals, section 165(c) limits
the deduction to losses incurred in a trade or business or any transaction
entered into for profit, except in the case of losses arising from casualty
or theft. In order to be deductible, losses must be evidenced by closed
and completed transactions, fixed by identifiable events, and actually
sustained during the taxable year. Boehm v. Commissioner, 326 U.S.
287, 291–92 (1945); United States v. S.S. White Dental Mfg. Co. of Pa.,
274 U.S. 398 (1927); Treas. Reg. § 1.165-1(b). A loss is deductible only
for the taxable year in which it was sustained. Treas. Reg. § 1.165-
1(d)(1); see also Moshrefzadeh-Sani v. Commissioner, T.C. Memo. 1992-
592.

       The basis for determining the amount of the deduction for any
loss pursuant to section 165(a) is the adjusted basis provided in section
1011 for determining the loss from the sale or other disposition of the
property. § 165(b).

       Petitioners presented documents at trial that purported to
substantiate petitioner’s claimed ownership of the Iranian properties,
their values, and their expropriation by the Iranian government in 2007.
However, on the basis of the report and testimony of respondent’s
expert, we find that the documents are forgeries and that the Iranian
lawyer petitioners claimed to have relied on to obtain the documents was
also a fabrication. We reach these conclusions for the reasons which
follow.

       Confronted with respondent’s expert’s findings that there was no
record of an Iranian attorney named Mohammad Ali Soltanpour with
the bar number, phone numbers, or addresses listed on the Declaration,
petitioners took the position for the first time at the supplemental trial
that Mr. Soltanpour was in fact an alias for an attorney who did the
work under an assumed identity for fear of reprisals from the Iranian
government if he were discovered assisting petitioner. This claim is
difficult to square with the testimony of Witness 1, who at the original
trial testified that he had inspected the Iranian properties with
Mr. Soltanpour.     During the further trial proceedings, however,
Witness 1’s recollection of Mr. Soltanpour was less clear; he claimed to
be uncertain whether he had interacted with Mr. Soltanpour directly or
instead with an Iranian real estate professional. Given Witness 1’s
obvious trimming of his testimony to meet the newly discovered
                                        8

[*8] evidence of Mr. Soltanpour’s fictitious status, we do not credit his
testimony in any respect. We likewise find unworthy of belief the
newfound claim at the supplemental trial that an actual Iranian
attorney using an alias procured the Registration and the Declaration.

      Of even greater relevance to the Registration’s and the
Declaration’s authenticity, the claim that the documents were obtained
by an attorney using an alias and a fictional bar number is too
improbable to accept. 8 Neither respondent’s expert nor petitioner’s
expert believed that an attorney using an alias and a fictional bar
number would have been able to obtain such documents from Iranian
government officials. Thus, even petitioners’ own expert effectively
concedes that there is significant doubt as to their authenticity.

       Moreover, the Declaration states the values of the purportedly
confiscated properties both in Iranian rials and U.S. dollars. Both
respondent’s expert and petitioner’s expert testified that it would be
highly unusual for Iranian government documents of this nature to state
any values in U.S. dollars. Neither had seen any similar document do
so in their experience.

        Finally, respondent’s expert was able to trace the ownership of
two of the three Iranian properties that petitioner claimed belonged to
him and had been confiscated. Respondent’s expert’s research revealed
that those two properties had never been owned by petitioner and/or the
Iranian government. Respondent’s expert was unable to find any record
of the third property. Petitioners offered no real response to this
research; their expert merely reiterated his claim that, on the basis of
his experience examining similar documents, the Registration and the
Declaration were authentic. When an expert offers a conclusory opinion
without providing the reasoning and facts to support it, it is entitled to
little weight. See Malachinski v. Commissioner, 268 F.3d 497, 504–05
(7th Cir. 2001), aff’g T.C. Memo. 1999-182.

       In sum, there is substantial evidence that the Registration and
the Declaration are forgeries, and we so find. As these documents were
petitioners’ principal means of substantiating their claim that petitioner

        8 The Declaration on its face is issued to Mr. Soltanpour and lists the bar

number that petitioners now concede is fake. While the Registration does not name
Mr. Soltanpour, both petitioner and Witness 1 testified at the original trial that
Mr. Soltanpour obtained the document, and according to respondent’s expert, a stamp
on the Farsi version of the document indicates that the original version is in the
possession of Mr. Soltanpour.
                                    9

[*9] owned the Iranian properties and that they were confiscated by the
Iranian government in 2007, petitioners have failed to show entitlement
to deduct capital losses in either the amounts claimed on their original
2007 return or in their claim of an overpayment embodied in their
amended return for that year.

Penalties

      Section 6662(a) Accuracy-Related Penalty

       The notice of deficiency also determined that petitioners are liable
for a substantial understatement penalty for 2007. An accuracy-related
penalty of 20% is imposed on any portion of an underpayment of tax
required to be shown on a return that is attributable to any substantial
understatement of income tax. § 6662(a), (b)(2). An understatement for
this purpose is generally the excess of the amount of tax required to be
shown on the return for the taxable year over the amount of tax imposed
which is shown on the return. § 6662(d)(2)(A). An understatement is
substantial when it exceeds the greater of 10% of the tax required to be
shown on the return for the taxable year, or $5,000. § 6662(d)(1)(A).
However, the substantial understatement penalty may not be imposed
with respect to any portion of an underpayment as to which the taxpayer
shows that he acted with reasonable cause and in good faith.
§ 6664(c)(1).

       The Commissioner bears the burden of production with respect to
a taxpayer’s liability for a section 6662(a) penalty and must produce
evidence that the imposition of the penalty is appropriate. See § 7491(c);
see also Higbee v. Commissioner, 116 T.C. 438, 446 (2001). This burden
of production includes producing evidence establishing that the penalty
was personally approved (in writing) by the immediate supervisor of the
individual making such a determination. § 6751(b)(1); Graev v.
Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling
in part 147 T.C. 460 (2016).

      Respondent has met his burden of showing that imposition of the
substantial understatement penalty is appropriate, as we have
sustained his asserted deficiency of $414,193, which exceeds 10% of the
amount of tax required to be shown on petitioners’ 2007 return.

       To fulfill the requirements of section 6751(b)(1), respondent
offered a Civil Penalty Approval Form prepared by the revenue agent
who conducted petitioners’ examination and signed by her immediate
supervisor. Petitioners contend that the Form does not meet the burden
                                   10

[*10] of production because it has numerous defects that render it
ambiguous with respect to demonstrating written supervisory approval.

       Petitioners point to two boxes at the top of the Form, one titled
“Reason(s) for Non-Assertions of Penalty(s)” (Non-Assertion box) and
the other titled “Reason(s) for Assertions of Penalty(s)” (Assertion box).
The Form provides a further explanation of the Non-Assertion box;
namely, that where a deficiency case is involved: “Explanation required
when adjustments made and penalties are not asserted. The applicable
exceptions to the penalty must be documented.” The Form provides no
further explanation with respect to the Assertion box (presumably
because it is deemed self-explanatory).

       In documenting her assertion of the substantial understatement
penalty, the revenue agent erroneously placed her explanation in the
Non-Assertion box, as follows: “The agent as [sic] considered and applied
substantial understatement penalty per Section 6662.” The Assertion
box is left blank.

       The box for the group manager approval (Approval box) is labeled
as follows: “Group Manager Approval to Assess Penalties Identified
Above . . . (And for non-assertion of Substantial Understatement
Penalty where dollar criteria for penalty has been met).” The signature
of the revenue agent’s immediate supervisor, a group manager, has been
placed in this box.

       Petitioners argue that because the Assertion box is blank, the
Form is “devoid of any explanation at all” for the assertion of the
substantial understatement penalty. We disagree. Examined in its
entirety, the Form fairly conveys an intention to assert the penalty,
although concededly the revenue agent erroneously placed her
explanation in the Non-Assertion box. Moreover, the Form calls for an
explanation only when the dollar criteria for the substantial
understatement penalty have been met and the penalty is not asserted.

      Petitioners further argue that, given the absence of an entry in
the Assertion box and the presence of an entry in the Non-Assertion box,
and the fact that the Approval box by its terms may be used to signify
the approval of the assertion or the non-assertion of penalties identified
in the boxes above, it is unclear whether the group manager was
approving a penalty or the non-assertion of the substantial
understatement penalty. Again, we disagree for essentially the same
reason. We find that the Form as filled out, notwithstanding the entry
                                   11

[*11] of an explanation in an erroneous box, clearly evinces an intention
to assert the substantial understatement penalty and was so understood
by the group manager signing it. Thus, written approval to assert the
penalty was obtained.

       Finally, petitioners argue that an ambiguity exists by virtue of
the manner in which the revenue agent filled out a box titled “Penalties
Requiring Group Manager Approval.” The box lists eight penalties,
including the substantial understatement penalty, as well as an
“Alternative Penalty Position.” A column adjacent to the penalty entries
is headed “Assert Penalty” with “Yes” and “No” boxes for each penalty.
As filled out by the revenue agent, the Form at issue has the “No” box
checked for every penalty, including the substantial understatement
penalty. However, the substantial understatement penalty—and only
that penalty—also has the “Yes” box checked. Petitioners argue that an
ambiguity is created by virtue of the fact that both the “Yes” and “No”
boxes have been checked with respect to the assertion of the substantial
understatement penalty. However, given that a check in the “Yes” box
appears only with respect to the substantial understatement penalty,
and the “No” box is checked with respect to all listed penalties, we are
satisfied that the revenue agent’s execution of the Form, while sloppy,
does not create any ambiguity sufficient to vitiate the group manager’s
approval.      In short, the “Yes” adjacent to the substantial
understatement penalty stands out in relation to all other penalties and
evinces an intent to assert that penalty and not any other.

       For the foregoing reasons, we are satisfied that the Civil Penalty
Approval Form proffered by respondent demonstrates compliance with
section 6751(b)(1).

       Petitioners also contend that they are not liable for the
substantial understatement penalty because they had reasonable cause
for the underpayment within the meaning of section 6664(c)(1) in that
they relied in good faith upon the professional advice of their return
preparer. However, taxpayers claiming such reliance must show that
they provided accurate information to their adviser. Neonatology
Associates, P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d
221 (3d Cir. 2002).      Petitioners assert that they provided the
Registration and the Declaration to their return preparer. We have
found those documents to be forgeries. Thus, petitioners’ failure to
provide accurate information to their adviser is fatal to their reasonable
cause defense.
                                     12

[*12] Fraud Penalty

       Although we have found that the documents petitioners proffered
to respondent and the Court to substantiate their claims are forgeries,
we do not apply a fraud penalty in this case for the following reasons.
Respondent waited until the end of the supplemental trial proceedings
to orally move for leave to amend the pleadings to assert a fraud penalty.
We denied respondent’s Motion because petitioners would have suffered
undue prejudice if respondent’s Motion had been granted. At a
minimum, petitioners were entitled to notice and an adequate
opportunity to elicit testimony and present evidence to rebut
respondent’s fraud allegations. See Julicher v. Commissioner, T.C.
Memo. 2002-55, slip op. at 23. For example, on this record we are unable
to determine whether petitioner intentionally submitted forgeries or
instead was duped by Witness 1 and actually believed the Registration
and the Declaration were genuine. We note in this regard that
petitioner testified in the initial trial proceeding that he had not actually
met Mr. Soltanpour, well before Mr. Soltanpour’s fictional status came
to light. By contrast, Witness 1 testified in the initial proceedings that
he had personally met with Mr. Soltanpour and only later changed his
testimony to equivocate on this point.

Conclusion

       Petitioners have failed to prove that the claimed expropriation
losses were sustained during the year in which they allegedly occurred.
Therefore, petitioners are not entitled to the capital loss deduction they
claimed. We also conclude that petitioners are liable for a section
6662(a) and (b)(2) substantial understatement penalty.

      We have considered all of petitioners’ arguments, and, to the
extent not addressed herein, we conclude that they are moot, irrelevant,
or without merit.

      To reflect the foregoing,

      Decision will be entered for respondent.