Jerry S. Payne, (1998)

Docket Number: 980-95

Linked as:

Extract

Jerry S. Payne, (1998)

T.C. Memo. 1998-227

UNITED STATES TAX COURT JERRY S. PAYNE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 980-95, 26812-95. Filed June 29, 1998.

Jerry S. Payne, pro se.

Richard C. Cummings, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION SWIFT, Judge: Respondent determined deficiencies in and additions to tax with regard to petitioner as follows:

Docket No. 980-95

Additions to Tax Year Deficiency Sec. 6653(b)(1)(A) Sec. 6653(b)(1)(B) Sec. 6661

1987 $172,310 $128,693 * $43,078 * 50 percent of interest payable under sec. 6601 with respect to portion of underpayment attributable to fraud.

Docket No. 26812-95

Additions to Tax Year Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec.6653(b)(1) Sec. 6661 1988 $653,048 $15,233 $3,047 $444,087 $163,262

Unless otherwise indicated, all 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.

The primary issues for decision are: (1) Whether petitioner received legal fees and other income that he did not report on his Federal income tax returns; (2) the value of stock petitioner received in September of 1988 as income; (3) whether for 1988 petitioner is to be charged with discharge of indebtedness income; (4) whether for 1988 a corporation petitioner controlled made a valid S election; (5) whether for 1987 and 1988 petitioner is entitled to certain claimed deductions; and (6) whether for 1987 and 1988 petitioner is liable for the fraud addition to tax.

Because of the inadequacy of petitioner's books and records, respondent used a combination of the specific item and bank deposits methods of proof in determining significant increases to petitioner's income over that reported on petitioner's income tax returns. Respondent also disallowed claimed deductions, made other adjustments, and charged petitioner with the fraud addition to tax for each year.

Respondent's adjustments and the capacity in which various funds, bank deposits, and stock were received by petitioner, whether they constitute taxable income to petitioner, the deductibility of the disputed deductions, and respondent's imposition of the fraud addition to tax are the subject of much confusion and disagreement between the parties. Certain items of income and deductions have been conceded. Also, petitioner now claims additional deductions that were not reflected on his Federal income tax returns and that were not properly raised in his pleadings.

FINDINGS OF FACT When the petitions were filed, petitioner resided in Houston, Texas.

During the years in issue, petitioner practiced law primarily as a litigation specialist, and petitioner owned and operated in Houston, Texas, a law firm under the name of Payne & Associates. Petitioner provided extensive legal representation to and eventually managed, controlled, and owned the stock of 2618, Inc. (2618 Inc) a corporation that owned and operated in Houston, Texas, a topless dance club under the name of Caligula XXI (the Club).

During part of the years in issue, Gerhard Helmle (Helmle) owned 50 percent of the stock of 2618 Inc, and he assisted in managing operations of the Club. Petitioner also provided legal representation to Helmle ...

See the full content of this document