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MARK N. AND MARLA R. KANTOR, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentKANTOR v. COMMISSIONERDocket No. 20429-93.
United States Tax Court T.C. Memo 1997-112; 1997 Tax Ct. Memo LEXIS 121; 73 T.C.M. (CCH) 2170;March 5, 1997, Filed*121Decision will be entered under Rule 155.
Mark N. and Marla R. Kantor, pro sese.Diane R. Mirabito, for respondent.BEGHE, JudgeBEGHEMEMORANDUM FINDINGS OF FACT AND OPINION
BEGHE,
Judge : Respondent determined a deficiency in petitioners' Federal income tax for 1982 and the following additions to tax for 1981 through 1985:Additions to Tax Year Deficiency Sec. 6653(b)(2) 1981 --- $ 18,047 --- --- 1982 $ 785 --- $ 33,549 1983 --- --- 88,803 1984 --- --- 41,156 1985 --- --- 57,564 FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated by this reference. Petitioners were residents of Bellmore, New York, when they filed their petition.
1.
Mark's Education, Work Experience, and Drug Use Petitioners were married in 1969, the year Mark began law school, and have two children. In 1972, Mark graduated from St. John's University-School of Law, ranked ninth in a class of 218. Mark took and passed two tax courses: *123 Federal income tax, and estate and gift tax. In 1972-73, he attended Harvard Law School in a Master of Laws degree program, but failed to complete the program. Mark did not complete a required term paper because of an episode of drug abuse. Although he passed the New York State bar exam, Mark never became a member of the bar.
In 1973, Mark went to work for Goldman, Sachs & Co., and remained employed there until he resigned in 1983. In 1979, Mark became a vice president in the security sales division, where he worked as a restricted stock specialist, brokering deals for wealthy clients to sell large blocks of corporate shares that were not tradable on a stock exchange. *124 As one of only two such specialists at Goldman, Sachs & Co., Mark had attained a high-profile position in the firm that led to higher bonuses and overall compensation. In 1981, his annual gross income amounted to $ 129,962, due almost entirely to bonuses.
Beginning in 1980, Mark's behavior in the workplace became increasingly erratic because of cocaine and marijuana consumption. In 1981, in order to minimize the obviousness of his frequent drug-abuse-related absenteeism, Mark transferred to the less demanding position of "sales trader coverer", as part of a 10-person group buying and selling large blocks of stock on the exchanges. Mark also began to lie to his coworkers and to Marla about his activities and his absences. In one such absence in 1982, Mark visited Harrah's Casino in Atlantic City by himself, ostensibly to gamble. Instead, he stayed in his hotel room, using drugs. On a number of occasions, Mark called Marla from work to say that he was having dinner with clients. He would then not call again until 3 or 4 a.m. the next morning to say that he would not be home at all. At other times, having come home late at night, Mark would have trouble getting up in the mornings. Despite being confronted during this period by at least one coworker friend who was concerned about his drug use, Mark made no effort to stop abusing *125 drugs. In 1982 and 1983, during Mark's chaotic last 2 years at Goldman, Sachs & Co., he stopped filing income tax returns. In 1981, just as his drug use was increasing and his behavior had begun to become more erratic, Mark prepared and filed a joint income tax return for himself and Marla for 1980 that included a detailed income averaging computation.
Although Mark's income continued to rise in 1982 and 1983, he drew his bonuses from a pool based upon the performance of his group as a whole. The bonus growth was mainly fueled by the resurgent stock market of the early 1980's, and not by Mark's particular expertise and efforts. In 1982, over $ 150,000 of Mark's total compensation of $ 202,385 consisted of bonuses. In 1983, Mark's income grew to $ 441,075, although that included deferred compensation received by him when he resigned his position. Goldman Sachs & Co. earned commissions of $ 2.5 million to $ 4.5 million during 1981 to 1983 on transactions that Mark had executed. During the 1980's, Goldman Sachs & Co. promoted many of Mark's contemporaries to positions of greater responsibility, while Mark was not so promoted. He remained one of many traders who had a nominal title of *126 vice president. His career had begun to stall. During his last couple of years at Goldman Sachs & Co., Mark also became increasingly anxious about being fired for abusing drugs.
In July 1983, The First Boston Corporation (First Boston) offered Mark a position in its restricted stock group, which was then expanding. Mark accepted the offer as a solution to his perceived problems at Goldman, Sachs & Co., despite his fears of accepting the same sort of demanding job that he had voluntarily abandoned just 2 years earlier.
Mark took his drug abuse habit to First Boston. His behavior became even more erratic. Three days after reporting to work, Mark missed 2 days because he was taking drugs. Thereafter, he canceled a business trip, with the false excuse that his mother had broken her arm. On another occasion, after he had been missing for 2 days, Marla found him at the train station, asleep in the back of his Jeep. In 1984, Mark went to Harrah's Casino in Atlantic City for a second binge of illegal drug use. During visits to Harrah's in 1982 and 1984, Mark wrote checks totaling $ 12,600. Despite this erratic behavior, First Boston earned commissions in the range of $ 3.5 million and $ 5.5 *127 million on transactions that Mark executed in 1984 and 1985. Mark continued as an employee at First Boston until 1989.
2.
Petitioners' Lifestyle and Financial Transactions Despite frequent drug-related absenteeism, Mark focused on keeping his job during the years at issue, first at Goldman, Sachs & Co. and then at First Boston. Mark's earnings, from which his employers withheld Federal and State income and employment taxes, were petitioners' sole source of support. *128 family spending pattern remained relatively constant throughout the years in issue. However, the record of their year-by-year expenditures is fragmentary because checks, check registers, and other records are missing for tax years 1981 and 1985.
The record shows that Mark and Marla habitually used cash for much of their consumption during the entire period of 1981 to 1985, even though they maintained several bank accounts. Funds deposited in these accounts during this period came largely from Mark's earnings and some relatively small returns on investments. In 1982, petitioners made over 200 checks out to cash, some for as much as $ 4,000. Dozens of the checks were for $ 100 or more. Both petitioners wrote like numbers of checks to cash in each of the other tax years in question using three different accounts with Chemical Bank; i.e., a checking account and an unidentified second account for the entire period, and a money market account from 1983 to 1985. Marla tended to write her checks to cash for $ 100 or less, while Mark wrote checks to cash for much larger amounts, including several for $ 5,000. Mark also drew cash from a First Boston brokerage account and a Dreyfus liquid assets *129 account. Mark used much of the money to purchase illegal drugs.
Mark regularly transferred funds between his various bank accounts, which included brokerage accounts, first at Goldman, Sachs & Co. during the years when he worked there, then at First Boston. These accounts, along with a Dreyfus liquid assets account, served as Mark's vehicles for conducting both his personal spending and his investment activities.
Petitioners paid for three major purchases on credit during the tax years: their house, the lease of the second Mercedes-Benz automobile, and another automobile, a Cadillac, bought in 1980. They missed no payments on any of these three obligations, although some of the payments made on the Cadillac in 1982 and 1983 and some of the lease payments on the Mercedes in 1985 may have been delinquent. Petitioners also regularly used several credit cards, including a Visa card from Chemical Bank. The income tax returns for each year reflect deductions ranging from a high of $ 2,431 in 1981 to a low of $ 1,384 in 1985 for credit card interest. Although petitioners began to experience financial difficulties in 1986, they were not dunned by creditors for unpaid bills during 1981 through *130 1985.
3.
IRS Investigation After petitioners failed to file timely income tax returns beginning in 1982 for tax year 1981, IRS agents contacted Mark on at least three occasions: November 23, 1982, July 18, 1985, and October 23, 1985. Mark contacted the IRS in the wake of at least one of these visits. Thereafter in 1986, the IRS began a criminal investigation of Mark's failure to file income tax returns. On July 24, 1986, agents from the IRS Criminal Investigation Division (CID) interviewed Mark. On August 20, 1987, petitioners mailed income tax returns to the IRS for tax years 1981 through 1985 and paid all taxes shown on the returns and interest through August 19, 1987. United States v. Kantor, charging him with a single count of violating section 7203, in that he willfully and knowingly failed to make at the time required by law an income tax return to the IRS for 1985. Mark *131 pleaded guilty to the charge, and on June 22, 1989, he was sentenced to 2 years' probation and fined $ 10,000. The terms of probation required Mark to complete 320 hours of community service and "continue to seek drug treatment".
On May 15, 1990, John J. Fitzgerald, an IRS Appeals officer, solicited from petitioners an open-ended extension of the period of limitations for each of the 5 years in issue by sending a form letter with two Forms 872A to petitioner's attorneys, Steven Mastbaum, Michael Feldberg, and Joel Goldschmidt. On June 4, Mr. Fitzgerald renewed the request by sending another form letter requesting that petitioners sign two copies of a Form 872, which would extend the period of limitations for each year by a specified period starting on August 26, 1990, the third anniversary of the date petitioners filed their tax returns.
Mr. Goldschmidt returned the completed Forms 872 to Mr. Fitzgerald on July 25, 1990, with a cover letter stating that he understood that Mr. Fitzgerald had no authority to limit the scope of the extension despite an earlier agreement to do so. The forms, signed by petitioners, and dated July 24, 1990, extended the period of limitations until June 30, *132 1991. On February 11, 1991, Mr. Fitzgerald sent a request for a second extension of the period of limitations to Mr. Goldschmidt. On March 19, 1991, Mr. Fitzgerald renewed the request, this time directly to petitioners. On March 21, 1991, petitioners signed and dated the Form 872, which further extended the period of limitations to June 30, 1992. Petitioners signed a third extension on February 26, 1992, which expired on June 30, 1993.
On June 25, 1993, respondent issued a statutory notice of deficiency to petitioners. Petitioners filed a timely petition with the Tax Court.
OPINION
Respondent determined additions to tax for fraud for each of the 5 years in issue solely with respect to petitioner Mark N. Kantor. Since we find no fraud for any of the years, we address respondent's alternative determinations of negligence, which are against petitioners jointly and severally by reason of their having filed joint income tax returns for the years in issue. Reaching these alternative determinations requires that we address,
infra p. 21, petitioners' allegation that the period of limitations expired for each of the tax years in issue because an invalid extension, Form 872, was executed. *1331. Fraud For tax year 1981, if any part of an underpayment is due to fraud, section 6653(b) imposes an addition to tax of 50 percent of the underpayment. For this purpose, the underpayment equals the tax required to be shown on the return if a return is delinquently filed. Sec. 6653(c)(1). For tax years 1982 to 1985, if any part of an underpayment is due to fraud, section 6653(b) (1) imposes *134 the same addition to tax on the entire underpayment, and section 6653(b) (2) imposes a further addition of 50 percent of the interest payable under section 6601 with respect to the portion of the underpayment attributable to fraud. Respondent bears the burden of proving by clear and convincing evidence that an underpayment exists and that part of such underpayment is attributable to fraud. Sec. 7454(a); Rule 142(b);
DiLeo v. Commissioner , 96 T.C. 858">96 T.C. 858959 F.2d 16">959 F.2d 16 (2d Cir. 1992);Smith v. Commissioner , 91 T.C. 1049">91 T.C. 1049Rickard v. Commissioner , 15 B.T.A. 316">15 B.T.A. 316926 F.2d 1470">926 F.2d 1470 (6th Cir. 1991);Stone v. Commissioner , 56 T.C. 213">56 T.C. 213Teitelbaum v. Commissioner , 294 F.2d 541">294 F.2d 541T.C. Memo. 1960-11 ;Recklitis v. Commissioner , 91 T.C. 874">91 T.C. 874An underpayment of tax exists in each year in dispute. Petitioners filed joint returns that show the amounts of tax required to be shown for 1981 and 1983 to 1985, and conceded the deficiency of $ 785 for 1982. *135 Accordingly, respondent has met her burden of proving the existence of the underpayments.
DiLeo v. Commissioner, supra Catalfo v. Commissioner , T.C. Memo. 1995-106101 F.3d 687">101 F.3d 687 (2d Cir. 1996).For each year, respondent must also establish petitioner's fraudulent intent by showing a specific intent to evade a tax believed to be owing through conduct intended to conceal, mislead, or otherwise prevent collection.
Webb v. Commissioner , 394 F.2d 366">394 F.2d 366T.C. Memo. 1966-81 ;Rowlee v. Commissioner , 80 T.C. 1111">80 T.C. 1111Comparato v. Commissioner , T.C. Memo. 1993-52United States v. Pechenik , 236 F.2d 844">236 F.2d 844Estate of Temple v. Commissioner , 67 T.C. 143">67 T.C. 143Grosshandler v. Commissioner , 75 T.C. 1">75 T.C. 1Fraudulent intent may never be imputed or assumed, but must be proven by independent evidence. *136
Recklitis v. Commissioner, supra at 909-910Beaver v. Commissioner , 55 T.C. 85">55 T.C. 85Rowlee v. Commissioner, supra at 1123Stone v. Commissioner, supra at 224Green v. Commissioner , 66 T.C. 538">66 T.C. 538Comparato v. Commissioner, supra Drieborg v. Commissioner , 225 F.2d 216">225 F.2d 216Axelrod v. Commissioner , T.C. Memo 1982-92">T.C. Memo. 1982-92711 F.2d 1062">711 F.2d 1062 (9th Cir. 1983).Because direct proof is often difficult to obtain, respondent may use circumstantial evidence to prove a taxpayer's fraud.
Spies v. United States , 317 U.S. 492">317 U.S. 492Stephenson v. Commissioner , 79 T.C. 995">79 T.C. 995748 F.2d 331">748 F.2d 331 (6th Cir. 1984); see alsoPowell v. Granquist , 252 F.2d 56">252 F.2d 56Gajewski v. Commissioner , 67 T.C. 181">67 T.C. 181578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978). We examine the taxpayer's entire course of conduct to determine whether *137 respondent has met her burden of proof of fraud by clear and convincing evidence.Miller v. Commissioner , 94 T.C. 316">94 T.C. 316Recklitis v. Commissioner, supra at 909-910Weighing and evaluating the objective evidence and taxpayer's testimony in a fraud case can be difficult.
Comparato v. Commissioner, supra .Stone v. Commissioner , 865 F.2d 342">865 F.2d 342Rosenbaum v. Commissioner , T.C. Memo 1983-113">T.C. Memo. 1983-113Davis v. Commissioner , 88 T.C. 122">88 T.C. 122866 F.2d 852">866 F.2d 852 (6th Cir. 1989), we find both Mark's and Marla's testimony generally credible, strongly supported by the rest of the record, and uncontroverted by respondent.The courts have developed a nonexhaustive list of the "badges of fraud",
Bradford v. Commissioner , 796 F.2d 303">796 F.2d 303T.C. Memo. 1984-601 ;Douge v. Commissioner , 899 F.2d 164">899 F.2d 164Miller v. Commissioner, supra at 334King's Court Mobile Home Park, Inc. v. Commissioner , 98 T.C. 511">98 T.C. 511Evidence of emotional or substance abuse problems can rebut evidence of fraudulent intent, either by showing that it prevented the taxpayer from forming the requisite intent,
Hollman v. Commissioner , 38 T.C. 251">38 T.C. 251T.C. Memo. 1962-236 , or *139 as part of a larger pattern of facts and circumstances that does not present clear and convincing evidence to the court.Gutierrez v. Commissioner , T.C. Memo. 1995-252105 F.3d 651">105 F.3d 651 (5th Cir. 1996).In other cases, this Court has used the presence of compelling evidence of a taxpayer's acts to mislead and conceal to find fraud, despite evidence of mental illness,
Yarbrough Oldsmobile Cadillac, Inc. v. Commissioner , T.C. Memo. 1995-538Maniloff v. Commissioner , T.C. Memo. 1991-554Yocum v. Commissioner , T.C. Memo. 1985-447Chaffin v. Commissioner , T.C. Memo. 1983-394Petitioners presented no psychiatric testimony or other evidence of mental impairment caused by drug addiction that prevented Mark from forming the requisite intent. However, the record is replete with anecdotal evidence that drug abuse played a destructive role in Mark's life long before the years in issue and that it continued throughout those years. Marla testified about many of these episodes and about her role in helping Mark keep his job, which provided their sole source of income, while Marla tended--as best she could--to their family life.
Against this background of Mark's drug abuse and petitioners' efforts to cope with it, respondent contends that Mark's failure to file income tax returns, which resulted in his pleading guilty under section 7203 for willful failure to file a return for 1985, frequent writing of checks to cash, and maintenance of an upper-middle-class lifestyle, taken together, prove his specific intent to evade the payment of taxes in the years in issue. We are not convinced, and we hold to the contrary.
The only "badge of fraud" found in the record is Mark's failure to file income tax returns *141 in each of the years 1981 to 1985.
Bradford v. Commissioner , 796 F.2d at 307-308Rowlee v. Commissioner , 80 T.C. at 1125In 1989, Mark pleaded guilty to a charge that he willfully failed to file his tax return in 1985. Sec. 7203. Such a conviction, without more, does not constitute clear and convincing evidence of fraud for that year,
Beaver v. Commissioner , 55 T.C. at 93Kotmair v. Commissioner , 86 T.C. 1253">86 T.C. 1253McCullough v. Commissioner , T.C. Memo 1993-70">T.C. Memo. 1993-70Farber v. Commissioner , 43 T.C. 407">43 T.C. 40744 T.C. 408">44 T.C. 408 (1965). As inHudgens v. Commissioner , T.C. Memo. 1985-587Paddock v. Commissioner , T.C. Memo. 1985-586Hudgens v. Commissioner, supra .The other factors cited by respondent do not support a finding of clear and convincing proof of fraudulent intent in any of the tax years in question. The welter of detail that respondent entered into the record documenting petitioners' expenditures during the years in question merely indicates a relatively affluent, if somewhat undisciplined lifestyle, heedless of the consequences of failing to pay taxes. The record does not recount a series of affirmative acts demonstrating fraudulent intent.
Spies v. United States , 317 U.S. 492">317 U.S. 492Anderson v. Commissioner , T.C. Memo. 1973-155Webb v. Commissioner , 394 F.2d at 377Respondent would also have us hold that petitioners' use of multiple bank accounts and extensive use of checks written to cash was a continued effort to conceal income. Petitioners openly conducted their affairs and concealed nothing, as attested by the wealth of minutiae in the record that respondent gathered. The sources of their funds were known and easy to trace: Mark's salary and bonuses earned during the tax years in question, from which substantial amounts of tax had been withheld and W-2 Forms issued by his employers as required by law. Secs. 3101, 3402, 6051; cf.
Stoltzfus v. United States , 398 F.2d 1002">398 F.2d 1002Stoltzfus v. United States, supra Weber v. Commissioner , T.C. Memo 1995-125">T.C. Memo. 1995-125That Mark was well educated, financially sophisticated, and conversant with his responsibilities under the Code is incontrovertible. Sophistication and knowledge are relevant only in concert with other, substantive indicia of fraud.
Beaver v. Commissioner, supra at 93O'Connor v. Commissioner , 412 F.2d 304">412 F.2d 304T.C. Memo. 1967-174 . In the circumstances of this case, Mark's background does not persuade us that his failure to file was actuated by fraudulent intent.Respondent also alleged that Mark failed to cooperate with the Service in its investigation. Uncooperativeness can indicate fraud.
Korecky v. Commissioner , 781 F.2d 1566">781 F.2d 1566T.C. Memo 1985-63">T.C. Memo. 1985-63 . However, respondent produced no evidence on this score other than an unsubstantiated allegation that Mark failed to respond to a single attempted contact in 1982, which the IRS itself failed to follow up. Mark responded to the next IRS contact made 3 years later, in 1985. Petitioners' eventual filing of tax returns in 1987 and subsequent willingness to execute extensions to the period of limitations do not indicate a willful failure to cooperate.Like the taxpayer in
Gutierrez v. Commissioner , T.C. Memo 1995-252">T.C. Memo. 1995-252105 F.3d 651">105 F.3d 651 (5th Cir. 1996), Mark was irresponsible and heedless in his actions. But the record is bereft of meaningful badges of fraud other than a failure to file itself and fails to support even a strong suspicion *146 of fraudulent intent.Drieborg v. Commissioner , 225 F.2d at 219-220Axelrod v. Commissioner , T.C. Memo. 1982-92711 F.2d 1062">711 F.2d 1062 (9th Cir. 1983).2. Other Issues Bearing on Liabilities for Additions to Tax i. Period of Limitations Preliminary to determining whether petitioners are liable for additions to tax in the alternative, we briefly address whether respondent timely issued the notice of deficiency to petitioners within the statutory period of limitations. Unless an exception applies, as in the case of a fraudulent return, sec. 6501(c)(1), or where no tax return is filed, sec. 6501(c)(3), the IRS must assess an income tax within 3 years after the taxpayer files a return, sec. 6501(a). The taxpayer and the IRS may agree to extend this period by executing a written agreement prior to the expiration of the period of limitations. Sec. 6501(c)(4). In deciding that the statutory period for assessing or collecting a tax deficiency has expired, this Court decides on the merits that no such deficiency exists. Sec. 7459(e); *147
United Business Corp. of Am. v. Commissioner , 19 B.T.A. 809">19 B.T.A. 80962 F.2d 754">62 F.2d 754 (2d Cir. 1933).Petitioners must raise in their pleading the affirmative defense that the statutory period of limitations has expired. Rule 39;
Mecom v. Commissioner , 101 T.C. 374">101 T.C. 37440 F.3d 385">40 F.3d 385 (5th Cir. 1994);Amesbury Apartments, Ltd. v. Commissioner , 95 T.C. 227">95 T.C. 227Petitioners have made a prima facie case by proving the filing date of the income tax returns, August 26, 1987, and that the statutory notice of deficiency was mailed more than 3 years thereafter, on June 25, 1993, thereby shifting the burden of going forward to respondent.
Robinson v. Commissioner , 57 T.C. 735">57 T.C. 735Ribb v. Commissioner , T.C. Memo 1988-379">T.C. Memo. 1988-379Concrete Engg. Co. v. Commissioner , 19 B.T.A. 212">19 B.T.A. 21258 F.2d 566">58 F.2d 566 (8th Cir. 1932), shifting the burden back to petitioners to affirmatively show the invalidity of those written consents.Crown Willamette Paper Co. v. McLaughlin , 81 F.2d 365">81 F.2d 365Concrete Engg. Co. v. Commissioner, supra at 221Kronish v. Commissioner , 90 T.C. 684">90 T.C. 684Petitioners raised two arguments. First, they questioned whether the date next to their signatures on the first Form 872 consent, signed on July 24, 1990, is in the same handwriting as that in the later two consents. Their argument in that respect appears to be that the consent was not properly executed and was therefore invalid. However, petitioners have produced no evidence other than their vague allegations about the differences in handwriting to support their contention. We find that the consent appears regular on its face and in accordance with the law. In the absence of contrary evidence, *149 we find it to be valid.
Concrete Engg. Co. v. Commissioner, supra at 221Next, petitioners allege that respondent's Appeals officer purportedly agreed with petitioners to drop the fraud penalty in return for extending the period of limitations. The record shows that the parties never reached a formal closing agreement, sec. 7121; sec. 601.202, Statement of Procedural Rules, and petitioners have not shown that the Appeals officer had the authority to enter into any other promises or bargains that may have been reached,
Klein v. Commissioner , 899 F.2d 1149">899 F.2d 1149Kronish v. Commissioner, supra at 692ii. Negligence As an alternative to fraud for each of the tax years in question, respondent determined a 5-percent addition to tax on underpayments, sec. 6653(a)(1), and for the years 1982 through 1985 an additional penalty *150 of 50 percent of interest due on the underpayment under section 6653(a)(2), based on her determination of petitioner's negligence. Section 6653(c) (1) defines an underpayment for purposes of this section as the excess of the amount of tax required to be shown on the return over the amount of tax shown on the return, except that the amount of tax shown is disregarded if the return was not filed within the prescribed time period. Negligence is defined as the lack of due care or failure to do what an ordinarily prudent person would do under the circumstances.
Bassett v. Commissioner , 67 F.3d 29">67 F.3d 29100 T.C. 650">100 T.C. 650 (1993);Marcello v. Commissioner , 380 F.2d 499">380 F.2d 49943 T.C. 168">43 T.C. 168 (1964). The failure of taxpayers, without reasonable cause, to comply with the statutory duty to timely file returns, sec. 6072(a), violates that duty and is probative of negligence,Sullivan v. Commissioner , 985 F.2d 704">985 F.2d 704T.C. Memo. 1991-492 ;Crocker v. Commissioner , 92 T.C. 899">92 T.C. 899Emmons v. Commissioner , 92 T.C. 342">92 T.C. 342898 F.2d 50">898 F.2d 50 (5th Cir. 1990). *151 Petitioners bear the burden of showing that they were not negligent. Rule 142(a);Goldman v. Commissioner , 39 F.3d 402">39 F.3d 402T.C. Memo. 1993-480 .Petitioners did not contend at trial or on brief that their actions in failing to timely file their returns were not negligent. For 1985, they are collaterally estopped from contending otherwise because of Mark's conviction under section 7203 for a willful failure to make a return.
Kotmair v. Commissioner , 86 T.C. 1253">86 T.C. 1253To reflect the foregoing,
Decision will be entered under Rule 155 .Footnotes
1. Addition is 50 percent of the underpayment as defined in sec. 6653(c).↩
2. Addition is 50 percent of the underpayment as defined in sec. 6653(c).↩
3. Addition is 50 percent of the interest payable under sec. 6601 with respect to such portion of the underpayment attributable to fraud.↩
1. Unless otherwise identified, section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Also known as "letter stock", so named because the Securities Exchange Commission rules require the purchaser of such stock, which is not registered with the SEC, and thus may not be traded on any stock exchanges, to file a letter with the SEC affirming that it is held for investment and not resale. Downes & Goodman, Dictionary of Fin. & Investment Terms 228 (3d ed. 1991).
3. Mark's employers only withheld a portion of the taxes owed. Petitioners paid substantial additional amounts of taxes due for each year when they eventually filed their delinquent returns on Aug. 26, 1987:
↩ Amount Additional Year Withheld Tax Owed 1981 $ 28,159 $ 7,934 1982 42,891 23,421 1983 113,351 61,862 1984 57,177 25,384 1985 71,533 43,596 4. See
supra↩ note 3 for excess of taxes owed for each year over amounts withheld. Mark made no additional payments until petitioners delinquently filed their tax returns.5. There is a minor evidentiary issue: Petitioners submitted at trial three letters, labeled petitioners' exhibit 29, that we exclude from evidence as hearsay.
Fed. R. Evid. 802 . The letters do not fall within the hearsay exception of "records of regularly conducted activity".Fed. R. Evid. 803(6) . First, the letters are not entries made during the routine of a business. They were apparently specifically written at Mark's behest to his attorney or "to whom it may concern". While the letters were seemingly made by persons with personal knowledge, petitioners have not provided the necessary foundation to ascertain that fact. Because the letters possess no other, equivalent circumstantial guarantees of trustworthiness, they cannot be admitted into evidence underrule 803(24) of the Federal Rules of Evidence.↩ 6. SEC. 7459(e). Effect of Decision That Tax Is Barred By Limitation.--If the assessment or collection of any tax is barred by any statute of limitations, the decision of the Tax Court to that effect shall be considered as its decision that there is no deficiency in respect of such tax.
Document Info
Docket Number： Docket No. 20429-93.
Citation Numbers： 73 T.C.M. 2170, 1997 Tax Ct. Memo LEXIS 121, 1997 T.C. Memo. 112
Filed Date： 3/5/1997
Precedential Status： Non-Precedential
Modified Date： 4/17/2021