Court Opinion

ID: 4340974
Source: CourtListenerOpinion
Date Created: 2018-11-14 08:51:41.371283+00
Date Added: 2024-06-11T09:35:40.141867
License: Public Domain

T.C. Memo. 2018-18

                         UNITED STATES TAX COURT

           MICHAEL J. BURKE AND JANE S. BURKE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

      Docket No. 15683-14.                          Filed February 21, 2018.

      Stephen Lee Christian, Joseph E. Mudd, and Gregory Michael Beck, for

petitioners.

      Jenny R. Casey, Hans Famularo, and Miles D. Friedman, for respondent.

               MEMORANDUM FINDINGS OF FACT AND OPINION

      HOLMES, Judge: Michael Burke dove into a business venture with a

friend, and continued to advance it funds even as it started to sink. When it failed,
                                        -2-

[*2] he tried to deduct the money he’d lost. The Commissioner thinks Burke is

trying to disguise an equity investment as a debt and disallowed the loss.

                               FINDINGS OF FACT

      Burke is currently a retiree, but before that he enjoyed a long and lucrative

career as an urban planner at a firm called RBF Consulting. But this case began

when he met an old friend from Santa Ana College, Hugh Parkey. Burke and

Parkey had taken a scuba-diving instructor-training program there together, and

for a short while they worked together as instructors. Parkey then moved to

Belize, and for a long time these old friends lost touch.

      Then, many years later, Parkey let Burke know that he was getting married,

and the old friends reconnected. Burke learned that scuba diving had become

Parkey’s vocation--a vocation that had led Parkey to become a scuba-diving

instructor and the manager of a diving and fishing resort in Belize. Burke himself

had left scuba diving behind in favor of urban planning. But Belize is a popular

vacation spot, and Burke and his wife found several occasions to visit Parkey over

the years.

      The Parkeys eventually opened a restaurant and guesthouse in Belize City,

but Parkey missed the scuba-diving business and came to Burke for money to start

his own. Burke credibly testified that he and Parkey discussed his business plans
                                         -3-

[*3] in great detail. Burke decided that he’d “loan” money to Parkey, but only if

Parkey gave him an “interest” in the business. So sometime in 1995 Burke sent

$30,000 to Parkey and together they formed Hugh Parkey’s Belize Dive

Connection (Belize Dive) as a Belizean corporation. Burke never prepared formal

loan documents for the payment, but instead recorded it in his personal books and

gave a copy of that record to Parkey. The two of them owned Belize Dive

together as 50-50 shareholders until 2002, when Parkey passed away.

      After his friend’s death, Burke tried to sell the business to a local resort.

But just as Burke was about to accept the resort’s offer, Mrs. Parkey asked him to

stop the sale. She didn’t like the resort’s manager, and thought it would be a slight

to her husband’s reputation to sell the business to him. Burke was happy to

oblige, and he let Mrs. Parkey assume her husband’s 50% interest. Mrs. Parkey

had her own vision for Belize Dive; she was interested in pursuing cruise-line

companies for business.

      She thought it was a great opportunity.

      She was wrong.

      Belize Dive did grow after it started to fish for business with the cruise

lines, but it started to need more capital for boats and diving equipment. It also

needed more staff. Burke continued to send money--money he says he was meant
                                        -4-

[*4] to get back--toward the company, but the business never quite ran at a profit.

Burke did keep a personal record of the advances he sent to Belize Dive, and at the

end of each year he turned it over to Belize Dive for inclusion in the corporate

records. He never saw these records, though.

      Belize Dive’s need for capital continued to grow. It at first provided only

scuba-diving services to the cruise lines, but thought it would make sense to offer

snorkeling too. To do that, it needed yet more boats and yet more equipment--

masks, fins, and life preservers. Cruise lines keep their passengers on a tight

schedule, which gave Belize Dive only a short time to get its customers from the

ship, get them to a place to snorkel, and then return them. To make that work,

Belize Dive leased a 186-acre island between the cruise-ship dock in Belize City

and the snorkeling reefs. After a short time, Belize Dive bought the island. This

cost yet more money, and Burke testified that he “loaned” the money to Belize

Dive to buy the island but admitted that he did not get a promissory note in

exchange.

      Burke continued to send money to Belize Dive to make improvements after

the purchase of the island, but he was reaching his limit and found it necessary to

seek outside financing. In came a third partner--a man named Wayne McNab--to

help bear the burden. In 2005 McNab became a 10% shareholder through dilution
                                        -5-

[*5] of Mrs. Parkey's stake when he kicked in $250,000. Burke himself continued

to advance funds, though, and with growing worry about Belize Dive’s future, he

asked for and received an additional 10% share in the company for himself. Mrs.

Parkey, however, continued to have new ideas, and her ideas continued to be

expensive. In 2009 Belize Dive built a man-made lagoon on its island where

customers could swim with four dolphins. Revenues were less than expected.

      That was enough. After one last multimillion-dollar spasm of money

transfers, Burke finally gave up. The numbers are a bit cloudy, but we find it more

likely than not from our review of the evidence that this table accurately

summarizes Burke’s advances to the corporation.

                  Year                                      Amount

                  1995                                     $30,015.00
                  1996                                      10,697.81
                  1997                                     102,339.25
                  1998                                     115,628.09
                  1999                                     223,672.45
                  2000                                     116,228.82
                  2001                                     106,256.95
                  2002                                     130,558.33
                  2003                                     560,407.37
                                        -6-

 [*6]             2004                                     818,890.55
                  2005                                   1,157,420.80
                  2006                                   1,340,559.59
                  2007                                   1,396,957.47
                  2008                                     880,050.26
                  2009                                   1,245,901.40
                  2010                                     811,869.10
                  2011                                   2,004,126.05
                   Total                                11,051,579.29

Burke now claims that each advance to Belize Dive was a loan. Other than the

summary above, which he claims is the result of contemporaneous recordkeeping,

Burke did not obtain formal loan documents for any of these payments before

2010. Each time Burke advanced money, he did so without setting a time for

repayment, and at the time of trial he had not received a single repayment of any

advance or even of interest.1 He didn’t expect to receive payment until the

business was profitable and he’d “be paid [his] share of the profits.” In contrast,

when Belize Dive obtained loans from other lenders over the years, it signed

formal written documents and paid the lenders back.

        1
        Burke said during trial that Belize Dive owed him interest on the loans,
but he was unable to point to any proof of that.
                                         -7-

[*7] Burke started to work with tax attorneys in Laguna Hills, California to file

his returns when he disposed of an unrelated investment on which he had made a

substantial capital gain. Burke and his attorneys were focused on tax planning,

and more specifically, “review[ing] alternatives for creating capital loss to offset

capital gain.” It was out of this tax-planning process that three promissory notes

from Belize Dive surfaced. Each note was created on January 1, 2010. Burke

claims that he had them drawn up under his attorneys’ suggestion to “give” or

“pass” some of his “debt” to Mrs. Parkey to encourage her not to leave Belize

Dive. The first note was a junior promissory note for $3,000,000; the second was

a junior promissory note for $2,171,000; and the third was a senior promissory

note for $6,000,000.2 We find that Mrs. Parkey did sign each note on behalf of

Belize Dive, though neither she (nor anyone else from the company) testified.

Burke claims that after they signed the note for $3,000,000 they discovered an

error, and drew up the second note for $2,171,000. So the second note was meant

      2
        Burke claims that the third note for $6,000,000 is senior to the others
because he believed he’d be able to recoup only $6,000,000 from Belize Dive’s
sale.
                                         -8-

[*8] to replace the first note, but Burke offered no explanation as to why they were

signed on the same day or cover different periods.3

      In November 2010 Burke sold his $2,171,000 junior promissory note to

Mrs. Parkey for $1. Burke claims that he wanted to give Mrs. Parkey the debt for

free but that his attorneys told him there was a tax advantage to selling it to her

instead. Then in December 2010 Belize Dive retired both Mrs. Parkey’s and

Burke’s “debt”. Burke received in exchange an additional 12.5% interest in Belize

Dive (bringing his total to 82.5%), and Mrs. Parkey’s interest sank from 30% to

15%.4 Burke then signed a deferred compensation agreement with the company to

create a book reserve for $354,230 for Mrs. Parkey. We specifically find that the

promissory notes, the sale of the note to Mrs. Parkey, and the deferred

compensation agreement were more likely than not orchestrated by Burke and his

attorneys to offset the large capital gains Burke had from unrelated interests in his

2010 and 2011 tax years. They are not proof of what they purport to show

happened before they were all executed.

      3
        The third note also bobbed up only at trial. At the audit Burke provided
only the notes for $3,000,000 and $6,000,000.
      4
          McNab’s interest in Belize Dive shriveled from 10% to 2.5%.
                                        -9-

[*9] With all this paper in place, Burke’s attorneys “review[ed] the tax

consequences of Debt Sale or compromise with related party entity” in August

2010, and they advised Burke that he was entitled to claim some losses. Burke

claimed a short-term capital loss of nearly $800,000 and a long-term capital loss of

more than $2 million on his 2010 tax return. He then claimed short-term and long-

term capital losses on his 2011 tax return.

      The Commissioner audited these returns and determined that Burke had

deficiencies for the 2010 and 2011 tax years and owed accuracy-related penalties

besides:

           Tax year                     Tax                Sec. 6662(a) Penalty

            2010                     $179,136                   $70,928.20
            2011                       264,470                  105,788.00

The only issues are whether Burke’s advances to Belize Dive were loans or capital

contributions and whether he is also liable for accuracy-related penalties under

section 6662(a).5 The parties did not stipulate, and the Commissioner has not

      5
        Unless stated otherwise, all section references are to the Internal Revenue
Code in effect for the years at issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                                        - 10 -

[*10] moved to introduce, any evidence that a supervisor had approved in writing

the initial determination to include these penalties in the notice of deficiency.

                                      OPINION

I.    Debt or Equity

      The parties’ arguments here are simple: Burke argues that his advances to

Belize Dive were bona fide debts, and the Commissioner argues that the advances

look more like equity. A bona fide debt is one that “arises from a debtor-creditor

relationship based upon a valid and enforceable obligation to pay a fixed or

determinable sum of money.” Sec. 1.166-1(c), Income Tax Regs.; see also Kean

v. Commissioner, 91 T.C. 575, 594 (1988). Whether a purported loan is a bona

fide debt is determined by the facts and circumstances of each case. See, e.g., A.R.

Lantz Co. v. United States, 424 F.2d 1330, 1333 (9th Cir. 1970); Dixie Dairies

Corp. v. Commissioner, 74 T.C. 476, 493 (1980). The Ninth Circuit6 has

identified eleven factors to consider in a debt-equity analysis, but strongly

cautions us not to overemphasize any one of them. A.R. Lantz Co., 424 F.2d at

1333. The factors are:

      !      the names given to the certificates evidencing the indebtedness;

      6
         Burke was a California resident when he filed his petition, which makes
the case appealable to the Ninth Circuit under section 7482(b)(1)(A).
                                          - 11 -

[*11] !      the presence or absence of a maturity date;

      !      the source of the payments;

      !      the right to enforce the payment of principal and interest;

      !      participation in management;

      !      a status equal to or inferior to that of regular corporate creditors;

      !      the intent of the parties;

      !      “thin” or adequate capitalization;

      !      identity of interest between creditor and stockholder;

      !      payment of interest only out of “dividend” money; and

      !      the ability of the corporation to obtain loans from outside lending
             institutions.

Id. (quoting O. H. Kruse Grain & Milling v. Commissioner, 279 F.2d 123, 125-26

(9th Cir. 1960), aff’g T.C. Memo. 1959-110). We of course follow this caselaw,

and discuss each of these factors, but will not let ourselves be poked by any of

these prongs away from our goal of discerning the parties’ intent at the time of the

advances. Bauer v. Commissioner, 748 F.2d 1365, 1367-68 (9th Cir. 1984), rev’g

T.C. Memo. 1983-120.
                                        - 12 -

[*12] A.     Names

      Formal loan documentation, such as a bond, a debenture, or a note, tends to

show that an advance is a bona fide debt. See Hardman v. United States, 827 F.2d

1409, 1412 (9th Cir. 1987); PepsiCo Puerto Rico, Inc. v. Commissioner, T.C.

Memo. 2012-269, at *57. It is undisputed here that Burke did not get formal loan

documentation when he made each advance. Instead, his first advance got him a

50% interest in Belize Dive, and his later advances got him a 10% increase in his

ownership share. Burke points to the January 2010 promissory notes as evidence

of bona fide indebtedness, but we’ve already found those promissory notes were

parts of some post hoc tax planning, so they are of little help in determining

Burke’s intent when he made the advances. Post hoc papering inconsistent with

how Belize Dive treated unrelated lenders in fact more strongly reinforces a

finding that this factor supports characterization of the advances as equity.

      B.     Maturity Date

      “The presence of a fixed maturity date indicates a fixed obligation to repay,

a characteristic of a debt obligation.” Estate of Mixon v. United States, 464 F.2d

394, 404 (5th Cir. 1972); see also PepsiCo Puerto Rico, Inc., at *57. Burke’s

alleged loans to Belize Dive had no fixed maturity date, and Burke credibly
                                        - 13 -

[*13] explained that he expected to be paid only when Belize Dive was sold or

profitable. This too weighs in favor of finding the advances to be equity.

      C.     Source of the Payments

      If the source of repayments depends on earnings, an advance is more likely

to be equity. Estate of Mixon, 464 F.2d at 405; Am. Offshore, Inc. v.

Commissioner, 97 T.C. 579, 602-03 (1991); Provost v. Commissioner, T.C.

Memo. 2000-177, 2000 WL 687889, at *5. That’s exactly what we had here:

Burke admitted that he didn’t expect to receive payment until the business was

profitable and he’d “be paid [his] share of the profits.”

      D.     Right To Enforce

      An enforceable and definite obligation to repay an advance indicates the

existence of a bona fide debt. See Hardman, 827 F.2d at 1413; Estate of Mixon,

464 F.2d at 405. Burke argues that Belize Dive had an enforceable and definite

obligation to repay his advances both after and before the execution of the 2010

promissory notes. He argues that before the notes, Belize Dive’s financial

statements recorded his advances as loans, but points to no authority that this

would give him a right to enforce their repayment. And even if we view the 2010

promissory notes as having created an enforceable right to repayment, failure to

take customary steps to ensure repayment is an indication of equity. Shedd v.
                                        - 14 -

[*14] Commissioner, T.C. Memo. 2000-292, 2000 WL 1337177, at *4. Burke

stumbles on these steps here--he never asked for repayment, and we find that he

never intended to enforce the notes: As part of his tax planning, he sold one and

relied on the possible sale of Belize Dive to pay the other. This factor weighs in

favor of finding the advances to be equity.

      E.     Participation in Management

      When a taxpayer receives a right to participate in management or an

increase in his ownership stake in exchange for an advance, it suggests that the

advance was an equity investment and not a bona fide debt. Hardman, 827 F.2d at

1413; Am. Offshore, Inc., 97 T.C. at 603; Provost, 2000 WL 687889, at *6.

Because Burke’s initial transfer to Belize Dive in 1995 came with a 50% share in

the company, that advance definitely indicates an equity investment. After that,

however, Burke’s participation in management at Belize Dive is unclear. He

testified that his only role was to lend money, but later said that he reviewed tax

documents and cashflow statements. It does not, however, seem he was involved

in the day-to-day operations of Belize Dive, and any involvement he did have was

minimal.

      Burke didn’t receive additional stock for later contributions until after he’d

already advanced millions of dollars to Belize Dive, and this was only a 10%
                                        - 15 -

[*15] increase in a flailing company. He credibly testified that he wanted the

additional 10% so that he’d have more control over Belize Dive’s direction given

its unstable business and the substantial funds he’d already advanced; and he

emphasized that he needed it if he was going to give Belize Dive any more money.

An increased interest or participation needed to prevent a company’s collapse does

not by itself mean an advance is an equity investment. Owens v. Commissioner,

T.C. Memo. 2017-157, at *33; Flint Indus., Inc. v. Commissioner, T.C. Memo.

2001-276, 2001 WL 1195725, at *13. But Burke received an extra 12.5% interest

in Belize Dive in 2010 when it retired his debt. With elements cutting both ways,

we find this factor to be neutral.

      F.     Status Equal or Inferior to Other Creditors

      Taking a subordinate position to other creditors indicates an equity

investment. See PepsiCo Puerto Rico, Inc., at *84; CMA Consol., Inc. v.

Commissioner, T.C. Memo. 2005-16, 2005 WL 209951, at *39. Burke readily

admitted during trial that his purported loans were subordinate to those of Belize

Dive’s secured creditors. He argues on brief, however, that they were not

subordinate to those of Belize Dive’s unsecured creditors, but there is nothing in

the record to support this position. And Burke in fact testified during trial that his
                                        - 16 -

[*16] “debt” was subordinate to several other of Belize Dive’s financial

arrangements. Thus, this factor supports a finding of equity.

      G.     The Parties’ Intent

      “[T]he inquiry of a court in resolving the debt-equity issue is primarily

directed at ascertaining the intent of the parties.” A.R. Lantz Co., 424 F.2d at

1333. But the Ninth Circuit includes intent itself as a factor in this multifactor

analysis. Id. This might otherwise be confusing, but caselaw seems to treat this

factor as the place to look for contemporaneous evidence of subjective intent. Id.

at 1333-34. That evidence shows that Burke never received or demanded

payments of either interest or principal from Belize Dive, and he expected to be

paid back only out of profits. That evidence also shows no contemporaneous

documentation from Belize Dive that stated the advances were loans--a lack which

is particularly telling because Belize Dive did borrow money from more

conventional lenders and did paper those transactions as conventional loans.

Burke admits that during the time he was making advances to Belize Dive he

didn’t even know for sure that they were being recorded as loans in its books.

While Belize Dive’s financial statements do show that they included Burke’s

advances in their total debt, we give this little weight: No one from Belize Dive,
                                         - 17 -

[*17] other than Burke, testified on his behalf. This factor also favors a finding of

equity.

      H.     “Thin” or Adequate Capitalization

      Thin or inadequate capitalization is strong evidence of a capital contribution

where: “(1) The debt to equity ratio was initially high, (2) the parties realized that

it would likely go higher, and (3) substantial portions of these funds were used for

the purchase of capital assets and for meeting expenses needed to commence

operations.” Am. Offshore, Inc., 97 T.C. at 604. Because neither party argued on

brief that evidence in the record directly supports or negates this factor, we treat it

as neutral. See, e.g., Provost, 2000 WL 687889, at *8.

      I.     Identity of Interest

      Advances in proportion to the stockholder’s capital interest indicate a

finding that the advance was an equity investment. Hardman, 827 F.2d at 1414;

Am. Offshore, Inc., 97 T.C. at 604. What financial records we have for Belize

Dive in the record indicate that from 1995 through 2011 (with the exception of

2010) Belize Dive’s liabilities exceeded its assets. And when Belize Dive lacked

money to cover its operating expenses, Burke just handed over the funds. We’ve

found before that these circumstances create an identity of interest between the

purported creditor and the controlling shareholder. CMA Consol., Inc., 2005 WL
                                        - 18 -

[*18] 209951, at *41. This factor weighs in favor of finding that the advances

were equity.

      J.       Payment of Interest Out of “Dividend” Money

      The presence of a fixed rate of interest, and the actual payment of interest,

indicate a bona fide debt. See Am. Offshore, Inc., 97 T.C. at 605. There is no

evidence here--aside from Burke’s own testimony--that his advances were even

supposed to accrue interest. It is also undisputed that Belize Dive never paid any

interest even if it was required, and that Burke didn’t ask for it, or intend to. “The

failure to insist on interest payments indicates that the payors are not expecting

substantial interest income, but are more interested in the future earnings of the

corporation or the increased market value of their interest.” Id. This weighs in

favor of a finding that the advances were equity.

      K.       The Ability of the Corporation To Obtain Loans From Outside
               Lending Institutions

      If a corporation is able to borrow funds from an outside source at the time of

the advance, the transaction looks more like a bona fide debt. Hardman, 827 F.2d.

at 1414; Am. Offshore, Inc., 97 T.C. at 605. The Commissioner mistakenly

distorts this factor to say that although Belize Dive was able to obtain financing

from other lenders, those transactions were at arm’s length and Burke’s were not,
                                        - 19 -

[*19] and so should count against him. While Belize Dive’s treatment of third-

party lenders is important, we’ve already dealt with it. This one factor does favor

a finding that Burke’s advances to Belize Dive were bona fide debts.

      Having swum through each of these prongs, we have to make a finding

about the parties’ intent at the times Burke advanced funds to Belize Dive. We

conclude that the absence of the normal incidents of a loan--especially a maturity

date and a stated interest rate--are most telling here. Without those aspects of a

loan the advances look much more like capital contributions--and the peculiar

advantage to Burke of generating a capital loss in 2010 to offset a large capital

gain means that the papering his tax advisers did that year to make the advances

look more like loans just makes it more likely than not that, at the time he made

them, Burke and the Parkeys intended those advances to be capital contributions.

Our conclusion is only reinforced by the strong evidence of the old friendship of

Burke and Parkey and Burke’s desire to help his old friend turn their old hobby

into a new business--a practical partnership where Burke contributed money and

Parkey contributed his labor and expertise and both hoped to share in the profits.

      Burke also tries to salvage some loss out of this situation and insists that the

transfer of the note to Mrs. Parkey in 2010 was at the least the disposition of a

capital asset of some sort. We disagree--the deal was made to seem as if it were
                                        - 20 -

[*20] the sale of a portion of the debt owed by Belize Diving to Burke. But we

have found that there was no debt to sell, and insufficient evidence that there was

a sale at all. We suspect (though we don’t actually have to find anything because

no party raised it) that Burke and Mrs. Parkey’s agreement that led to Burke’s

owning 82.5% of the stock in Belize Dive was a simple tax-free recapitalization

under section 368(a)(1)(E)--a “reshuffling of a capital structure within the

framework of an existing corporation.” See Helvering v. Southwest Consol.

Corp., 315 U.S. 194, 202 (1942). Burke may well be entitled to a capital loss

when he disposes of that stock, but not until then and not for the years at issue

here.

II.     Penalties

        The Commissioner also asserts that Burke is liable for accuracy-related

penalties under section 6662(a) for his 2010 and 2011 tax years. Section 6662(a)

imposes a 20% penalty when there is an underpayment attributable to “[a]ny

substantial understatement of income tax.” Sec. 6662(b)(2). Part of whether the

Commissioner met his initial burden of production is a simple math problem: An

understatement of tax is “substantial” if it exceeds the greater of $5,000 or “10

percent of the tax required to be shown on the return.” Secs. 6662(d)(1)(A),
                                        - 21 -

[*21] 7491(c). Burke’s understatements for the 2011 and 2012 tax years surpass

both $5,000 and 10% of the tax required.

      Burke asserts, however, that he had reasonable cause and acted in good

faith. See sec. 6664(c)(1); sec. 1.6664-4(b)(1), Income Tax Regs. He specifically

argues that he is not liable for the penalties because he relied on the advice of a tax

adviser. Reliance on an adviser can excuse a taxpayer from an accuracy-related

penalty but only if his reliance was reasonable. Neonatology Assocs., P.A. v.

Commissioner, 115 T.C. 43, 98 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002).

Reliance is reasonable if:

      •      the adviser was a competent professional with sufficient
             expertise to justify reliance;

      •      the taxpayer provided necessary and accurate information to
             the adviser; and

      •      the taxpayer actually relied on the adviser’s judgment in good
             faith.

Id. at 99. The Commissioner does not dispute that Burke’s attorneys were

competent professionals. And Burke credibly testified that he gave his attorneys

the records he kept that detailed his advances to Belize Dive. We find this

sufficient proof of the first two requirements for reasonable reliance.
                                       - 22 -

[*22] What troubles us is the tax-planning strategy those lawyers came up with

when they got this information. They recharacterized Burke’s advances to Belize

Dive as loans and did some last-minute papering to make it seem as if they were.

After listening to Burke, we don’t find that he could have reasonably relied on

their advice that this would work--there were just too many red flags that a

sophisticated businessman should have noticed. First, he went along with their

plan even though he himself had never treated his advances to Belize Dive as if

they were loans. He couldn’t fully explain why he was selling debt to Mrs. Parkey

or how that would give her an incentive to stay with Belize Dive. And it seems

just way too convenient to draft promissory notes for advances already made just

as he’d given up on the company.

      We do not, however, sustain the section 6662(a) accuracy-related penalties

for the years at issue. The Commissioner failed to present any evidence that the

penalties were “personally approved (in writing) by the immediate supervisor of

the individual making such determination.” See sec. 6751(b)(1); Chai v.

Commissioner, 851 F.3d 190, 221 (2d Cir. 2017), aff’g in part, rev’g in part T.C.

Memo. 2015-42; Graev v. Commissioner, 149 T.C. ___, ___ (slip op. at 14) (Dec.

20, 2017), supplementing 147 T.C. ___ (Nov. 30, 2016). Accordingly, he did not
                                       - 23 -

[*23] meet his burden of production, and Burke is not liable for the determined

penalties. See sec. 7491(c); Graev, 149 T.C. at ___ (slip op. at 14-15).

      There were settlements and concessions on other issues, so

                                                Decision will be entered under

                                          Rule 155.