DocketNumber: Docket No. 21262-94.
Citation Numbers: 1996 T.C. Memo. 125, 71 T.C.M. 2419, 1996 Tax Ct. Memo LEXIS 129
Judges: LARO
Filed Date: 3/13/1996
Status: Non-Precedential
Modified Date: 4/17/2021
1996 Tax Ct. Memo LEXIS 129">*129 Decision will be entered for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO,
Following concessions, we must decide:
1. Whether petitioner may deduct certain payments that he made to the Hollywood, Florida, police department as a charitable contribution. We hold he may not.
2. Whether petitioner may deduct those payments as an expense under
3. Whether petitioner is entitled to a bad debt deduction with respect to two "loans". We hold he is not.
4. Whether petitioner is liable for an addition to his 1987 tax under
Unless otherwise stated, section references are to the Internal Revenue Code in effect for the year in issue. Rule references1996 Tax Ct. Memo LEXIS 129">*130 are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest dollar.
FINDINGS OF FACT
Some facts have been stipulated and are found accordingly. The stipulated facts and exhibits are incorporated herein by this reference. Petitioner resided in Hollywood, Florida, when he filed his petition.
On August 28, 1986, the Hollywood, Florida, police department (Police Department), with the assistance of the United States Marshals (collectively referred to as Officers), searched petitioner's home pursuant to a valid search warrant. The Officers found 334 grams of cocaine, $ 7,362 in United States currency, various gold and silver coins, and jewelry in a safe. They also uncovered drug paraphernalia, weapons, ammunition, and other miscellaneous items. These items were seized and inventoried by the Police Department.
Petitioner was arrested for cocaine trafficking. In addition to a fine of at least $ 100,000, the minimum mandatory period of incarceration for this offense was 5-years imprisonment. See
Petitioner remitted the $ 80,000 payment at the time of his sentencing hearing. In light of this payment, petitioner's plea, and his assistance to the authorities, the judge waived the minimum mandatory confinement and fine and sentenced petitioner to a lighter sentence of 3-1/2 years of probation.
Meanwhile, the property seized by the police was the subject of a civil forfeiture action filed in Florida State court. At a probable cause hearing that was held in this action, the presiding judge found that the police had probable cause to seize petitioner's personal property, and that the requirements had been satisfied under Florida law for the Police Department to remain in possession of those items and to continue the forfeiture proceeding. See
On November 4, 1992, petitioner filed his 1987 Federal income tax return. On his Schedule A, Itemized Deductions, petitioner claimed a charitable contribution deduction with respect to the amounts he paid to the Police Department. 1 Petitioner also claimed a $ 161,100 casualty loss for the items of personal property seized by the police. Petitioner also claimed, a bad debt deduction of $ 176,500, which was based on alleged loans to two individuals, Ashley Dunn (Mr. Dunn) and William Crowl (Mr. Crowl).
1996 Tax Ct. Memo LEXIS 129">*133 OPINION
The determinations reflected in respondent's notice of deficiency are presumed correct, and the burden is on petitioner to disprove these determinations.
In the instant case, petitioner was charged with trafficking in cocaine. Under applicable State law, this offense carried a mandatory 5-year prison term, and at least $ 100,000 in fines. See
Petitioner argues that he may nevertheless deduct the $ 90,0001996 Tax Ct. Memo LEXIS 129">*136 payment under
We are unpersuaded by petitioner's arguments. Simply put, petitioner repurchased certain personal property from the Police Department, in lieu of its forfeiture, and a deduction is not allowable for property forfeited in connection with illegal narcotics activity. See, e.g.,
Respondent disallowed all of the bad debt deduction reported on petitioner's 1987 return. Respondent determined that petitioner did not prove that any of the amounts advanced to Messrs. Dunn or Crowl created a bona fide loan.
Petitioner has produced no meaningful evidence rebutting respondent's determination. First, there is no evidence that Mr. Dunn or petitioner ever contemplated that petitioner would loan Mr. Dunn money. Rather, in 1987, Mr. Dunn forged petitioner's1996 Tax Ct. Memo LEXIS 129">*139 signature on checks drawn upon petitioner's bank account, and Mr. Dunn embezzled funds from petitioner's Charles Schwab brokerage account. Petitioner sued his bank and Charles Schwab in 1988, settling the matter about a year later for $ 40,000. Petitioner also sued Mr. Dunn to recover the embezzled amounts. Petitioner received monthly restitution payments from Mr. Dunn until 1989.
Second, petitioner advanced Mr. Crowl $ 120,000 by checks dated January 17, 1980. Petitioner argues this advance was a loan as evidenced by the fact that he wrote the word "loan" on the memo line of the checks. We are unpersuaded. Petitioner's writing the word "loan" on each check does not, in itself, establish that the advance was in fact a loan. We find relevant the fact that petitioner did not enter a written loan agreement with Mr. Crowl, nor did he execute any promissory notes, maintain a repayment schedule for the advances, or charge interest. We also find relevant that petitioner did not take other meaningful steps to enforce this purported loan. The record shows that Mr. Crowl, at petitioner's direction, was to invest the $ 120,000 in the silver market. The record also shows that Mr. Crowl would1996 Tax Ct. Memo LEXIS 129">*140 share the profits in the event that the investment proved profitable. Thus, it appears to us that petitioner and Mr. Crowl transacted business for the purposes of investing in the silver market and that no debtor-creditor relationship existed between them. Nor has petitioner established that any debt owed him by Mr. Crowl became worthless during the year in issue. We find for respondent on this issue.
Respondent determined that petitioner is liable for an addition to tax under
In the instant case, petitioner's 1987 income tax return was due, considering extensions, on October 15, 1988. Petitioner filed his return on November 4, 1992, well after the due date. Petitioner alleges that his return was untimely due to his inability to obtain access to his residence after his arrest in order to retrieve records necessary to prepare his return. Petitioner also maintains that certain records were thrown out by the U.S. Marshals before the forfeiture sale of his building. We are not impressed with petitioner's arguments. The unavailability of records does not necessarily establish reasonable cause for failure to file timely. See
Petitioner attempts to shift the responsibility for the untimeliness of his return to his accountant. Again, we are not persuaded. First, reliance on one's accountant to file a timely return is not "reasonable cause" for a late filing under
To reflect the foregoing,
1. Petitioner originally reported that he transferred $ 152,297 of Chrysler Corp. stock to the Police Department, as a charitable contribution. Petitioner, however, never transferred any shares of Chrysler Corp. stock to the Police Department. Instead, the Chrysler Corp. stock was sold, and the proceeds were used to repurchase petitioner's personal property from the Police Department for $ 90,900.↩
Fuller v. Commissioner of Internal Revenue , 213 F.2d 102 ( 1954 )
In Re Arthur Carol Sanford, Debtor. United States of ... , 979 F.2d 1511 ( 1992 )
United States v. Boyle , 105 S. Ct. 687 ( 1985 )
Harold Dejong and Marjorie J. Dejong v. Commissioner of ... , 309 F.2d 373 ( 1962 )
Hans Zimmerman and Clara Zimmerman, Apellants v. United ... , 318 F.2d 611 ( 1963 )
Nelson M. Blohm and Joann M. Blohm v. Commissioner of ... , 994 F.2d 1542 ( 1993 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Commissioner v. Duberstein , 80 S. Ct. 1190 ( 1960 )
United States v. American Bar Endowment , 106 S. Ct. 2426 ( 1986 )
Hernandez v. Commissioner , 109 S. Ct. 2136 ( 1989 )
Electric & Neon, Inc. v. Commissioner , 56 T.C. 1324 ( 1971 )
Estate of Vriniotis v. Commissioner , 79 T.C. 298 ( 1982 )