DocketNumber： Docket Nos. 16947-87; 25289-87; 35488-87
Filed Date： 2/28/1990
Status： Non-Precedential
Modified Date： 11/21/2020
MEMORANDUM OPINION
GERBER,
Initially, petitioner contends that we made no finding with respect to whether the master recordings, which were the subject of deductions and credits, were placed in service in the year the credits were claimed. Petitioner argues that if the assets were not placed in service then section 6659 should not be imposed, citing , affd. . Respondent counters that the facts in this case are distinguishable from
Petitioner is correct that our opinion did not include a specific finding that the masters were or were not placed in service. We find it incongruous that petitioner should now argue that the masters may not have1990 Tax Ct. Memo LEXIS 102">*104 been placed in service. No such finding was requested or proven by petitioners, who bear the burden of proof in this case. To the contrary, petitioners offered evidence of the production and marketing of tapes for sale from the masters in question. Further, respondent, on brief, did not contend or argue that the masters were not placed in service. In that setting, we found it unnecessary to make a finding that the masters were placed in service, although our discussion of the various transactions and the valuation aspects implies the existence and use of the masters to produce tapes. Accordingly, without a finding (and in this case the possibility of a finding) that the masters were not placed in service, this case is distinguishable from
Next, petitioner argues that even if the masters were placed in service, our "finding that the transactions were without economic substance requires that the Court not reach -- and therefore not impose * * *" the addition to tax under section 6659. On this point petitioner asks us to focus upon the opinion of the United States Court of Appeals for the Fifth Circuit in ,1990 Tax Ct. Memo LEXIS 102">*105 affg. , and .
With respect to the opinion of the Court of Appeals for the Fifth Circuit, petitioner directs us to the court's rationale that the taxpayers "did not benefit from their tax shelter, since their depreciation deductions and investment tax credits were denied in full." . Petitioner, however, failed to distinguish the fact that the Tax Court opinion in
Because the fair market value of the master recording is an integral part of the fair market value of the lease, crucial to our lack of economic substance determination, the understatement linked to the disallowed credits is attributable to a valuation overstatement. * * *
Further, it is probable that Congress was balancing competing policies when it determined how to apply [section] 6659. First, Congress may not have wanted to burden the Tax Court with deciding difficult valuation issues where a case could be easily decided on other grounds. Second, Congress may have wanted to moderate the application of the [section] 6659 penalty so that it would not be imposed on taxpayers whose overvaluation was irrelevant to the determination of their actual tax liability. [Fn. refs. omitted.]
. The opinion of the Court of Appeals provides supporting rationale for our finding that section 6659 is applicable in the setting of this case. We were required to consider the question of value in order to decide whether the transactions had or lacked economic substance.
Petitioner argues that , also supports his contention1990 Tax Ct. Memo LEXIS 102">*107 that the section 6659 addition is not applicable in this case. In
We do not here intend to modify or change the holdings of
Petitioner contends that our opinion focused upon the promoter's and not the investor's shortcomings in regard to the transaction. Further, petitioner contends that he relied on the promoter and, accordingly, 1990 Tax Ct. Memo LEXIS 102">*109 should not be held liable for the addition to tax under section 6653(a)(1) and (2).
Our memorandum opinion adequately addressed petitioner's contentions, as follows:
The partnerships and investors relied on Smith to make all the business decisions regarding the master recording venture. This included the value of the master tapes upon which the feasibility of the entire venture rested. Further, both Smith [the promoter] and Mason [petitioner] knew that the value of the master recordings was critical to the amount of the investment ITC claimed on the returns. Neither Smith nor petitioner attempted to obtain any independent appraisals of the leases or the masters themselves. In addition, Smith was not experienced in the production or distribution of audio cassette tapes. * * * Finally, the master recording venture promised approximately $ 21,000 in tax credits and $ 14,000 in deductions for a $ 14,000 investment. No reasonable person would have trusted this scheme to work without some independent support. , affg. a Memorandum Opinion of this Court; .1990 Tax Ct. Memo LEXIS 102">*110 [
In this case petitioner relied upon the promoter of the transaction who stood to gain from petitioner's participation in the promoter's venture. Petitioner cited , in support of his position on this point. That case is inapposite because the reliance there was upon the taxpayer's attorney, who was compensated to give expert and independent advice on the matter there involved.
In view of the foregoing,
1. Cases of the following petitioners are consolidated herewith: Beach Investors 400, James Maxham, Vernon L. and Phyllis Payton, Frank and Rosemary Mendoza, A Partner Other Than the Tax Matters Partner, docket No. 25289-87; and James D. Mason, docket No. 35488-87.↩
2. For purposes of this opinion James D. Mason shall be referred to as "petitioner." ↩
3. Section references are to the Internal Revenue Code, as amended and in effect for the years in issue.↩