Minton v. Comm'r

T.C. Memo. 2007-372
UNITED STATES TAX COURT
LINDA K. MINTON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6641-03. Filed December 26, 2007.
P was a 50-percent shareholder in LPP, which had
claimed S corporation status since it elected that
status in 1975. By 1986, P’s father and founder of the
business had sharply reduced his participation in the
conduct of LPP’s business affairs, which were then run
by P’s brother and P. In that year, P, her brother,
father, and mother (the directors and shareholders of
LPP) agreed that LPP would begin to make fixed, monthly
distributions to P’s father. Prior to filing her 1998
return, P was advised that that agreement had created a
second class of LPP stock, which negated LPP’s S
corporation status in 1986 and for all subsequent
years. See sec. 1361(b)(1)(D), I.R.C. On that basis,
P failed to report on her 1998 return the LPP income
listed on the 1998 Schedule K-1, Shareholder’s Share of
Income, Credits, Deductions, etc., issued to her by
LPP. The issue for decision is whether the 1986
agreement caused LPP to lose its S corporation status.
Held: P has failed to prove that the 1986
agreement constituted a “binding” agreement “relating
to distribution * * * proceeds” within the meaning of
sec. 1.1361-1(l)(2)(i), Income Tax Regs., and,
therefore, that that agreement created a second class
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of stock, which caused LPP to lose its S corporation
status.
William A. Pesnell, for petitioner.
Daniel N. Price, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: Respondent has determined a deficiency of
$165,366 in petitioner’s 1998 Federal income tax liability and an
addition to tax of $16,484 for that year on account of
petitioner’s failure to file her 1998 return on time. Petitioner
concedes the addition to tax and two of respondent’s adjustments
resulting in his determination of a deficiency. Putting aside a
computational adjustment that requires no decision by us, there
remain two issues for decision: (1) Whether, before 1998, by
creating a second class of stock, Long’s Preferred Products, Inc.
(LPP), lost its status as a pass-through entity (an S
corporation), thereby eliminating the requirement that petitioner
include her allocable share of LPP’s 1998 income in her 1998
income, and (2) whether the duty of consistency bars petitioner
from asserting that LPP lost its S corporation status before
1998. Because we decide the first issue in respondent’s favor,
we need not (and do not) address the second issue.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 1998, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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All dollar amounts have been rounded to the nearest dollar.
FINDINGS OF FACT1
Some facts have been stipulated and are so found. The
stipulation of facts, with attached exhibits, is incorporated by
this reference.2
1
In part, Rule 151 provides as follows:
RULE 151. BRIEFS
* * * * * * *
(e) Form and Content: * * *
* * * * * * *
(3) * * * In an answering or reply brief, the
party shall set forth any objections, together with the
reasons therefor, to any proposed findings of any other
party, showing the numbers of the statements to which
the objections are directed; in addition, the party may
set forth alternative proposed findings of fact.
Petitioner has filed an answering brief, but she has failed
therein to set forth objections to the proposed findings of fact
made by respondent. Accordingly, we must conclude that
petitioner has conceded respondent’s proposed findings of fact as
correct except to the extent that respondent has failed to direct
us to any evidence in the record supporting those proposed
findings or those findings are clearly inconsistent with either
evidence in the record or petitioner’s proposed findings of fact.
See, e.g., Jonson v. Commissioner, 118 T.C. 106, 108 n.4 (2002),
affd. 353 F.3d 1181 (10th Cir. 2003).
2
At trial, the Court reserved judgment with respect to
respondent’s objection to two, and petitioner’s objection to one,
of the exhibits (Exs. 17-P, 22-P, and 35-R) attached to the
stipulation of facts. Before the conclusion of the trial, the
Court sustained respondent’s objection (hearsay) to Ex. 17-P.
The Court directed the parties to address on brief the
admissibility of the two other exhibits. Assuming arguendo that
we were to resolve the two remaining disputes in petitioner’s
favor, we would nonetheless find for respondent in this case.
Therefore, our findings of fact (and opinion) take into account
petitioner’s Ex. 22-P and exclude from consideration respondent’s
Ex. 35-R.
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At the time the petition was filed, petitioner resided in
Pineville, Louisiana.
Background
Petitioner’s parents, Julian E. Long (Julian E.) and Alma
Kathryn Long (Alma), both of whom are now deceased (Alma in 1990,
Julian E. in 2005), operated LPP as a sole proprietorship in the
early 1950s. Initially, no one else worked in the business. LPP
sells janitorial and paper supplies.
LPP was incorporated under Louisiana law on December 31,
1975. From its inception through 1998, LPP had 100 shares of
stock issued and outstanding. Pursuant to its articles of
incorporation, those 100 shares constituted its total authorized
capital stock.3 Julian E. and Alma were the initial shareholders
of LPP. Shortly after its incorporation, LPP filed an election
with respondent to be treated as an S corporation. Respondent
accepted that election.
In 1964, petitioner’s brother, Julian W. Long (Julian W.),
began working on a full-time basis for LPP as a janitor. He
later worked as a delivery driver, a salesman, and, finally, a
manager. In early 1985, he became president of LPP.
3
The articles of incorporation do not specifically state
that those 100 shares of stock (the 100 shares) represent a
single class of stock with identical rights as to dividends or
distributions. The articles, however, do not state the contrary.
Also, petitioner’s argument that the allegedly disproportionate
distributions to Julian E. beginning in 1986 evidence the
creation of a second class of stock indicates her belief that the
100 shares constituted a single class of stock prior to 1986. We
think it a fair inference that the 100 shares constituted a
single class, at least until then, and we so find.
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In 1977, petitioner began working on a full-time basis for
LPP. She worked in outside sales for approximately 7 years.
Thereafter, until the early 1990s, she was involved in the
management of LPP and was appointed vice president and
secretary/treasurer on February 24, 1992.
Prior to 1977, Julian E. carried on the business of LPP. By
the mid-1980s, however, he had ceased to be actively involved in
day-to-day operations and, essentially, had became a consultant.
LPP never paid him anything for his services that it labeled a
salary. He did, however, draw money out of the corporation to
pay his and his wife’s living expenses as they needed it.
LPP’s Distributions to Julian E. Long Beginning in 1986
During 1986, Julian E., Alma, Julian W., and petitioner
agreed (the 1986 agreement) that, from then on, Julian E. and
Alma would receive a monthly distribution from LPP, initially
fixed at $4,000, but which amount fluctuated thereafter.
During 1993-95 (the last three full years in which Julian E.
was a shareholder in LPP), with the exception of two $5,000
payments in 1995, one to Julian W. and one to petitioner, and one
payment of $14,786 in 1995 on behalf of Julian W. for the
purchase of a boat, the only distributions from LPP to its
shareholders, other than in the form of payments (on their
behalf) of income taxes to either the Internal Revenue Service or
the Louisiana Department of Revenue, were made to Julian E. In
each of 1993 and 1994, Julian E. received twelve $2,000
distributions. In 1995, he received eleven $2,000 distributions
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and, like Julian W. and petitioner, one $5,000 distribution.
Also, in 1993, LPP made four $522 payments to a bank on behalf of
Julian E. In 1996, there were distributions to Julian E. in the
form of tax payments on his behalf.4
For 1993-95, LPP’s total distributions to shareholders
closely approximated the 42-29-29-percent ownership interests of
Julian E., Julian W., and petitioner, respectively, as reflected
on LPP’s 1993-95 returns as filed.5
Petitioner’s 1998 and Amended 1996 and 1997 Returns and LPP’s
1997 and 1998 Returns
During the course of litigation in the Louisiana State
courts instituted by petitioner against LPP, Julian E., Julian
W., and others with respect to the number of LPP shares owned by
4
The record contains no evidence as to the actual amounts
of the monthly payments to Julian E. from 1986 to 1992, and only
petitioner’s testimony that they, in fact, were made.
5
We make no findings of fact regarding ownership of the
100 shares between 1990, after Alma died, and 1996 when Julian W.
and petitioner each became the owner of 50 of the 100 shares. In
2001, LPP’s accountant represented to respondent that LPP’s
1986-95 returns show that Julian E. held 42 percent of its shares
and Julian W. and petitioner, 29 percent each, and that,
effective January 1996, Julian E. conveyed all of his LPP shares
to Julian W. and petitioner, one-half to each. That
representation is corroborated by trial testimony given in an
earlier Louisiana State court proceeding by LPP’s prior
accountant. There is, however, contradictory evidence in the
record indicating that (1) at the time of her death in 1990, Alma
owned a one-half community interest with Julian E. in 42 shares
of LPP stock, (2) she bequeathed the shares represented by that
interest (21 shares) to Julian W. and petitioner, 10.5 shares to
each, thereby giving each 39.5 shares or a 39.5-percent interest
in LPP as of 1990, and (3) in 1996, Julian E. transferred 21
shares to his children, not 42 shares.
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her (the first Louisiana litigation),6 petitioner discovered an
audio tape of a purported 1986 LPP shareholders/directors meeting
attended by Julian E., Julian W., and Alma. Her attorney, who is
also her counsel in this case, after listening to the tape and
having it transcribed, advised her that the participants at the
meeting, by providing for a fixed level of distributions to
Julian E., had created a second class of stock in LPP, thereby
negating LPP’s S corporation status. Consistent with that
position, petitioner, on her 1998 Form 1040, U.S. Individual
Income Tax Return, which she filed on or about November 15, 1999,
omitted $229,292 of ordinary income and other pass-through items
reported on the Schedule K-1, Shareholder’s Share of Income,
Credits, Deductions, etc., issued by LPP to her for 1998.7 Along
with her 1998 return, petitioner submitted a Form 8082, Notice of
Inconsistent Treatment or Administrative Adjustment Request
(AAR), which purported to justify that omission on the basis that
the 1986 agreement created a second class of stock in LPP,
6
In an unpublished opinion, Minton v. Long’s Preferred
Prods., Inc., 829 So. 2d 669 (La. Ct. App. 2002), the court of
appeal held in petitioner’s favor in that litigation and
confirmed that she (1) purchased 19 shares of LPP stock in 1986
and (2) owned 50 shares (or 50 percent) of that stock as of 1996,
not 40.5 shares (or 40.5 percent) as had been alleged by Julian
E. and Julian W. and reported on the 1998 Schedule K-1,
Shareholder’s Share of Income, Credits, Deductions, etc., issued
to her by LPP.
7
Respondent’s adjustment for petitioner’s alleged omission
of LPP income is $283,077, based upon her ownership of 50 shares
of LPP stock, whereas the 1998 Schedule K-1 issued to her by LPP
reflects her ownership of only 40.5 shares, a position that was
subsequently rejected by the Louisiana Court of Appeal. See
supra note 6.
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thereby causing it to lose its S corporation status in 1986.
Thereafter, petitioner filed amended 1996 and 1997 returns in
which she took a position, vis-a-vis LPP’s earnings, consistent
with that taken in her 1998 return.
LPP’s 1997 Form 1120S, U.S. Income Tax Return for an S
Corporation, reports $160,562 of ordinary income from trade or
business activities, total distributions to shareholders of
$91,460, retained earnings at the start of the year of $582,933,
and yearend retained earnings of $649,035. LPP’s 1998 Form 1120S
reports $566,153 of ordinary income from trade or business
activities, total distributions to shareholders of $32,946, and
yearend retained earnings of $1,182,242. The 1998 Schedule K-1
issued to Julian W. and petitioner do not list any amount as
having been distributed to them.8
LPP filed Forms 1120S for tax years 1976-98. Except for her
amended 1996 and 1997 Federal returns, for all tax years prior to
1998 during which she was a shareholder in LPP, petitioner
included in income all LPP pass-through items in conformance with
the Schedule K-1 issued to her by LPP.
Petitioner’s 1999 Transfer of One Share of LPP
On June 7, 1999, petitioner contributed one share of her LPP
stock to H.C. Chemicals, Inc. (HCC), which had been incorporated
by her daughter, Heather Minton Fuller (Heather), on June 4,
1999. Heather became the president and sole shareholder of HCC,
8
LPP’s financial records for 1998, however, do reflect
1998 distributions to Julian W. and petitioner in the sum of
$32,946.
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the sole function of which has been to hold shares of LPP. LPP
utilized June 7, 1999, as the date of termination of its S
corporation status.
Louisiana Court of Appeal Decision
The first Louisiana litigation ended with an unpublished
opinion by the Louisiana Court of Appeal,9 affirming the decision
of the Louisiana (Rapides Parish) District Court that petitioner
did, in fact, purchase 19 shares of LPP stock from Julian E. in
1986. The Court of Appeal stated:
Linda could not remember what each document was
entitled nor the terms of the [1986] sale [of 19 shares
of LPP stock to her and 19 shares to Julian W.], other
than to say that the consideration for the sale would
come in the form of payments to Julian E. from the
corporation.
Petitioner’s October 2, 2000, Affidavit
In connection with the first Louisiana litigation,
petitioner executed an affidavit in which she made the following
representations:
On September 23, 1986, Julian Edward Long sold 38
shares of stock, in equal amounts, to affiant and
Julian W. Long. They signed an Act of Sale, promissory
notes and stock certificates to this effect.
* * * * * * *
Thereafter, consideration for the sale of the stock was
paid to Julian Edward Long monthly out of the profits
of the corporation in the form of cash, house payments,
car payments, payments on all monthly expenses and
credit card bills, and other payments. * * *
9
Minton v. Long’s Preferred Prods., Inc., supra.
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Petitioner’s April 21, 2004, Deposition
In connection with additional litigation in the Louisiana
courts, this time in a suit to rescind the 1986 sale of LPP stock
by Julian E. to petitioner (together with the first Louisiana
litigation, the Louisiana litigation), petitioner was deposed on
April 21, 2004, by plaintiffs’ counsel. During the deposition,
petitioner testified that she executed a promissory note to
Julian E. in consideration for 19 shares of LPP stock. In
testifying as to the manner in which she made payments on that
note, the following exchanges occurred between petitioner and
plaintiffs’ counsel:
A [Petitioner]: Okay, the payments to my father
were made on my behalf through
Long’s Preferred Products.
Q [Counsel]: In other words, you are saying that
the corporation paid your note, is
that correct, that was owed to your
father?
A [Petitioner]: He -- the stock that I purchased
from my father was paid on my
behalf through the corporation, and
that was the way that my father and
my brother and myself talked about
having it done.
* * * * * * *
Q [Counsel]: So you, as of this date -- have
you, yourself, personally, made any
payment towards the retirement of
this note?
A [Petitioner]: I have through the corporation of
Long’s Preferred Products.
* * * * * * *
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Q [Counsel]: If Long’s Preferred Products did
not make any payments on your
behalf, who else would have made
the payments?
A [Petitioner]: Mr. Lee, I know Long’s Preferred
Products did. I know I was
working. I know I had the meeting
with my father and my brother. I
know what took place. I know he
was not working. I know I was not
-- I mean, I was working, and I
know he was happy with the
arrangement. So I don’t know what
the books would reflect, but I know
what took place.
Q [Counsel]: When did this meeting take place?
A [Petitioner]: It would have been in 1986.
OPINION
I. Introduction
We must determine whether, on account of a second class of
stock, LPP’s status as an S corporation terminated in 1986. If
it did, then petitioner did not have to include in her 1998
income her allocable share of LPP’s 1998 income except to the
extent distributed to her. Petitioner concedes that she bears
the burden of proof. See Rule 142(a).
II. Discussion
A. Internal Revenue Code and Regulations
With respect to any taxable year, section 1361(a)(1) defines
an S corporation as “a small business corporation for which an
election * * * [to be an S corporation] is in effect for such
year.” Section 1361(b) defines a “small business corporation” as
a domestic corporation which must satisfy a number of
requirements, one of which is that it not have “more than 1 class
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of stock.” See sec. 1361(b)(1)(D).
In pertinent part, and with exceptions not here relevant,
section 1.1361-1(l)(1), Income Tax Regs., provides that “a
corporation is treated as having only one class of stock if all
outstanding shares of stock of the corporation confer identical
rights to distribution and liquidation proceeds.” In pertinent
part, section 1.1361-1(l)(2)(i), Income Tax Regs., provides:
The determination of whether all outstanding shares of
stock confer identical rights to distribution and
liquidation proceeds is made based on the corporate
charter, articles of incorporation, bylaws, applicable
state law, and binding agreements relating to
distribution and liquidation proceeds (collectively,
the governing provisions).
Pursuant to section 1362(d)(2), S corporation status
terminates when the corporation ceases to qualify as an S
corporation, e.g., upon the creation of a second class of stock.
B. Analysis
1. Absence of a Binding Agreement
Petitioner argues that (1) the 1986 agreement constituted a
“binding agreement”, within the meaning of section 1.1361-
1(l)(2)(i), Income Tax Regs.,10 to make “guaranteed payments” to
10
We note that, pursuant to sec. 1.1361-1(l)(7), Income
Tax Regs., “sec. 1.1361-1(l) does not apply to: an * * *
arrangement * * * entered into before May 28, 1992, and not
materially modified after that date”. Sec. 1.1361-1(l)(7),
Income Tax Regs., continues, however: “a corporation and its
shareholders may apply this sec. 1.1361-1(l) to prior taxable
years.” We consider petitioner’s 1998 return position and her
reliance upon sec. 1.1361-1(l)(1) and (2)(i), Income Tax Regs.,
in this case as an election by petitioner, in her capacity as a
shareholder of LPP, to apply sec. 1.1361-1(l), Income Tax Regs.,
to the 1986 agreement. Therefore, we shall apply that regulation
(continued...)
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Julian E., beginning in 1986, in whatever monthly amounts would
be necessary to cover his and Alma’s living expenses, (2) those
payments “were made over time, and accounted for properly as
state law dividends”, and (3) because “[n]o other shareholder
received the monthly guaranteed payments that were received by
Julian E. Long”, LPP ceased to be an S corporation “from the
moment that the agreement was made”.
We find that the evidence does not support petitioner’s
position. She has failed to carry her burden of proving that the
1986 agreement constituted a “binding agreement” giving Julian E.
enhanced or disproportionate “rights to [LPP’s] distribution and
liquidation proceeds”, as required by section 1.1361-1(l)(1) and
(2)(i), Income Tax Regs. Such an agreement is necessary in order
for us to conclude that LPP had a second class of stock.
To begin with, petitioner has failed to establish that the
1986 agreement was in any way “binding”. At best, petitioner
testified that that agreement was nothing more than an informal,
oral understanding among the board members/shareholders of LPP to
have LPP make monthly distributions to Julian E. in whatever
amounts he (and Alma) needed to cover their living expenses, a
practice similar to that which prevailed prior to 1986. There is
no evidence that the family members, in their capacity as
directors and/or shareholders of LPP, took any formal corporate
10
(...continued)
in deciding whether the 1986 agreement created a second class of
LPP stock.
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action to implement that understanding.11
Louisiana corporation law specifically addresses the manner
in which directors or shareholders of a Louisiana corporation
shall act on behalf of the corporation. Petitioner has cited no
provisions of Louisiana corporation law (and, therefore, no
authority) in support of her position that LPP was bound by the
1986 agreement with the result that it might be said to
constitute a “binding agreement” for purposes of section 1.1361-
1(l)(2)(i), Income Tax Regs. Our own review of Louisiana
corporation law leads us to conclude that the procedures required
to (1) institute a board of directors’ or shareholders’ meeting
and (2) adopt binding resolutions at such meetings are either
governed by the articles of incorporation and/or the bylaws or by
the Louisiana corporation law itself.12
11
That absence of corporate action is inconsistent with
what appears to have been the normal practice of LPP’s
shareholders/directors to keep written minutes of directors’ and
shareholders’ meetings and of resolutions adopted at those
meetings.
12
With regard to board of directors’ meetings, see La.
Rev. Stat. Ann. sec. 12:81C(6)(a) (1994):
[N]otice of meetings of the board shall be given as
provided in the articles or bylaws. If not so
provided:
(i) Regular meetings of the board may be held
without notice of the date, time, place, or purpose of
the meeting, provided that the date, time, and place
are fixed by the board or are determinable pursuant to
the articles or bylaws.
(ii) Special meetings of the board shall be
preceded by at least two days notice of the date, time,
and place of the meeting.
(continued...)
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LPP’s articles of incorporation do not address the
procedures for (1) instituting directors’ or shareholders’
meetings or (2) adopting binding resolutions at such meetings,
and petitioner has failed to place LPP’s bylaws into evidence.
Nor has she demonstrated compliance with the provisions of
Louisiana corporation law that pertain to those procedures in the
absence of controlling articles or bylaws.
Without evidence that the 1986 agreement constituted a
“binding agreement” within the meaning of section 1.1361-
1(l)(2)(i), Income Tax Regs., the most that can be said of the
monthly distributions to Julian E. is that they, in effect,
provided him with a timing benefit vis-a-vis LPP’s distributable
earnings, which, in total, have not been shown to belong to LPP’s
12
(...continued)
(iii) The notice of a special meeting of the
board shall describe the purpose of the special
meeting.
See also La. Rev. Stat. Ann. sec. 12:81C(9) (1994):
Any action which may be taken at a meeting of the board
of directors * * * may be taken by a consent in writing
signed by all of the directors * * * and filed with the
records of proceedings of the board * * * .
With regard to shareholders’ meetings, see La. Rev. Stat. Ann.
sec. 12:73D (1994), which, in pertinent part, provides:
Unless otherwise provided in the articles or by-laws,
and except as otherwise provided in this Chapter, the
authorized person or persons calling a shareholders’
meeting shall cause written notice of the time, place
and purpose of the meeting to be given to all
shareholders entitled to vote at such meeting, at least
ten days and not more than sixty days prior to the day
fixed for the meeting. * * * Notice of any
shareholders’ meeting may be waived in writing by any
shareholder at any time * * *
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shareholders on other than a pro rata basis (in accordance with
their respective stock ownership percentages). See sec. 1.1361-
1(l)(2)(vi), Example (2), Income Tax Regs. (indicating that
differences in the timing of distributions to shareholders do not
cause an S corporation to be treated as having more than one
class of stock).13
2. Purpose and Nature of the Fixed Distributions to
Julian E.
The only support for petitioner’s argument that, in 1986,
the directors/shareholders of LPP agreed to make fixed
distributions to Julian E. in amounts necessary to cover his (and
Alma’s) living expenses is petitioner’s testimony to that effect.
But that testimony is contradicted by the Louisiana Court of
Appeal’s description of petitioner’s trial testimony and by
petitioner’s affidavit and a deposition given in connection with
the Louisiana litigation, all of which indicate that all or a
portion of the fixed distributions to Julian E., commencing in
1986, were made for the purpose of paying him (through LPP) for
his 1986 sale of LPP stock to Julian W. and petitioner. If that
is so, it follows that some or all of the distributions to Julian
13
In this connection, we note the absence of evidence that
any disproportionate distributions to Julian E. prior to 1996,
when he ceased to be a shareholder in LPP, would not be offset by
future remedial distributions to the other shareholders out of
LPP’s substantial retained earnings, which totaled $582,933 at
the end of 1996. Moreover, the payment of $14,786 in 1995 on
behalf of Julian W. for the purchase of a boat indicates that
remedial payments could occur whenever Julian W. or petitioner
needed distributions in excess of LPP’s tax payments on their
behalf. That payment also indicates that all of the shareholders
were on equal footing vis-a-vis profit distributions from LPP in
that all were entitled to distributions on an as-needed basis.
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E. were from LPP profits that belonged, and were taxable, to
Julian W. and petitioner, not to Julian E. See, e.g., Bitker v.
Commissioner, T.C. Memo. 2003-209 (partnership’s payments of
interest on the taxpayer-partner’s personal debt included in his
taxable distributions from the partnership). Thus, assuming
arguendo that the 1986 agreement represented a binding agreement
on the part of LPP’s directors/shareholders to make
disproportionate distributions to Julian E., petitioner has
failed to establish that the payments did, in fact, constitute
distributions with respect to Julian E.’s shares rather than
distributions in discharge of Julian W.’s and petitioner’s
personal debts to Julian E. and, therefore, distributions with
respect to their shares. Moreover, the conflicting evidence
regarding the purpose of the fixed distributions to Julian E.
raises the possibility that they were intended to achieve both of
those purposes and, therefore, that they were made, in part, with
respect to Julian E.’s shares and, in part, with respect to
Julian W.’s and petitioner’s shares. In that event, they very
well may have constituted proportionate distributions, a result
fully consistent with the continued existence of one class of LPP
stock.
3. Conclusion
Petitioner has failed to prove that LPP had more than one
class of stock in 1998.
III. Conclusion
In light of petitioner’s concessions and our disposition of
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the more than one class of stock issue, we must sustain
respondent’s determination of a deficiency.
Decision will be entered
for respondent.