DocketNumber: No. 10801-89
Citation Numbers: 2000 T.C. Memo. 367, 80 T.C.M. 788, 2000 Tax Ct. Memo LEXIS 434
Filed Date: 12/4/2000
Status: Non-Precedential
Modified Date: 4/17/2021
2000 Tax Ct. Memo LEXIS 434">*434 Decision will be entered under Rule 155.
MEMORANDUM OPINION
LARO, JUDGE: This case was submitted to the Court fully stipulated under Rule 122. Respondent determined a $ 5,416 deficiency in petitioner's 1981 Federal income tax and additions thereto of $ 270.80 and $ 1,624.80 under sections 6653(a)(1) and 6659, respectively. Respondent also determined as to the entire deficiency that petitioner was liable for the time sensitive addition to tax under section 6653(a)(2) and the increased rate of interest under
Following concessions by the parties, we must decide:
1. Whether petitioner is liable for an addition to tax under
2. Whether petitioner is liable for the increased rate of interest under
We hold for respondent as to both issues. Section references are to the Internal Revenue Code in effect for the year in issue. Rule references are to the Tax2000 Tax Ct. Memo LEXIS 434">*435 Court Rules of Practice and Procedure.
BACKGROUND
The parties have filed with the Court a stipulation of facts and accompanying exhibits. We find the stipulated facts accordingly, and we set forth the relevant facts in this background section. We also set forth in this section facts which we find from the exhibits and from matters which petitioner admitted under Rule 90. Petitioner resided in New York, New York, when she petitioned the Court.
Petitioner timely filed her 1981 Federal income tax return. She claimed thereon a $ 689 loss from Grade, a $ 9,380 investment tax credit from Grade, an income tax liability (exclusive of the investment tax credit) of $ 4,646, and an income tax liability (after applying $ 4,646 of the investment tax credit to 1981) of zero. Respondent disallowed the $ 689 loss and the $ 4,646 investment tax credit applied to 1981.
Petitioner has a 7-percent limited partnership interest in the profits and losses of Grade. Grade, in turn, has a 16.6666- percent limited partnership interest in the profits and losses of Degree Associates (Degree). Degree is a limited partnership with 1 general partner; namely, Joel Mallin. Degree's stated purpose was to lease and2000 Tax Ct. Memo LEXIS 434">*436 exploit energy management systems equipment which, when installed, would control the use of energy in a plastics manufacturing plant operated by Milor Corporation. An investment in Degree carried a very high degree of risk.
Degree's promoter distributed a private placement memorandum (PPM) on Degree to potential investors. The PPM listed cash-flow and economic projections for 1981 to 2011 (PPM projections) which were predicated upon the assumption that: (1) The projected level of energy conservation would be achieved, (2) the cost of energy would increase 18.5 percent per year between 1981 and 2011, and (3) the energy management systems equipment would remain useful for that 30- year period. The PPM projections predicted total pretax receipts by Degree of $ 4,502,490 between 1981 and 2011, the present value of which equals $ 181,228, when discounted at 14 percent. 1 The PPM projections predicted that the total up-front investment by Degree in the energy management systems equipment would be $ 292,500 in 1981, which means that the net present value of Degree's net receipts was a negative $ 111,272 ($ 181,228 less $ 292,500).
2000 Tax Ct. Memo LEXIS 434">*437 Degree claimed that it placed the energy management systems equipment in service during 1981 and that the equipment had a tax basis and fair market value of $ 8,040,000. Grade's claimed share of the basis in the equipment was $ 1,339,464 (16.6666 percent times $ 8,040,000), and petitioner's claimed share of that basis was $ 93,800 (7 percent times $ 1,339,464). The equipment had a true fair market value of no more than $ 354,000, and Degree's claimed fair market value and tax basis of the equipment exceeded the equipment's true fair market value by approximately 2,271 percent.
Petitioner never read the PPM, and she never discussed the PPM with Mr. Mallin. Before participating in Degree, petitioner had no experience in the development, operation, or marketing of energy management systems, she had no knowledge of the components and equipment constituting the energy management systems equipment, and she had no knowledge of whether or not the energy management systems equipment was installed in Milor Corporation.
Burton Kanter is a tax attorney, and petitioner was his executive secretary from March 1962 to June 1970. Mr. Kanter advised petitioner to participate in Degree, and she relied2000 Tax Ct. Memo LEXIS 434">*438 solely upon his advice in making her decision to do so. Mr. Kanter has no experience in the development, operation, marketing, or appraisal of energy management systems.
Petitioner's participation in Degree was not motivated by a desire for economic profit. She participated in Degree solely for tax reasons.
DISCUSSION
We review respondent's determination that petitioner is subject to
Petitioner does not deny that respondent correctly determined that she had an understatement of tax attributable to a valuation overstatement within the meaning of
Respondent's refusal to waive a
Even if petitioner had made such a timely request, we find nothing in the record to establish that she had the requisite reasonable basis for the overstated valuation to overcome respondent's determination. 2000 Tax Ct. Memo LEXIS 434">*441 The mere fact that she relied on Mr. Kanter, a tax professional, in choosing to participate in Degree does not mean that she reasonably reported the overstated valuation on her income tax return. Indeed, the facts of this case, including the facts that petitioner was aware of Mr. Kanter's qualifications from their longtime close business relationship, that Mr. Kanter was not professionally qualified to evaluate or appraise the energy management systems equipment, that petitioner never read the PPM, and that petitioner never made an attempt independently to evaluate or appraise the energy management systems equipment, point to the conclusion that any reliance that petitioner placed on Mr. Kanter as to the valuation was unreasonable. See
Nor do we conclude that respondent erred as to the increased rate of interest under
We have considered all arguments in this case, and those arguments2000 Tax Ct. Memo LEXIS 434">*443 not discussed herein are irrelevant or without merit. Accordingly,
Decision will be entered under Rule 155.
1. The yield on long-term U.S. Treasury bonds was generally 14 percent in 1981.↩
Lyon v. Commissioner , 1 B.T.A. 378 ( 1925 )
Laurence M. Addington, David M. Cohn, John Sann and ... , 205 F.3d 54 ( 2000 )
Richard J. Borchers Jane E. Borchers v. Commissioner of ... , 943 F.2d 22 ( 1991 )
Howard Gilman v. Commissioner of Internal Revenue , 933 F.2d 143 ( 1991 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )