ASTONE v. Commissioner
| Decision Date | 15 December 1983 |
| Docket Number | 2108-76.,Docket No. 2095-76,2107-76 |
| Citation | 1983 TC Memo 747,47 TCM (CCH) 632 |
| Parties | Anthony Astone and Dorothi Astone, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Anthony Astone and Dorothi Astone, pro se. Thomas M. Cryan, for the respondent.
Memorandum Findings of Fact and Opinion
In the notices of deficiency mailed to petitioners on December 17, 1975, respondent determined deficiencies in petitioners' income tax and additions to tax in these consolidated cases in the following amounts:
After concessions by the parties the following issues remain for our decision:
Docket No. 2095-76. 1. Whether petitioners Anthony and Dorothi Astone had unreported constructive dividend income for the taxable years 1966 through 1971, inclusive;
2. Whether Dorothi Astone had unreported rental income for the taxable years 1966 and 1968 through 1971, inclusive, in the amounts determined by respondent;
3. Whether Anthony Astone received unreported income in the form of compensation in the amounts of $364 for the taxable year 1966 and $1,200 for the taxable year 1969;
4. Whether Anthony and Dorothi Astone received unreported long-term capital gains during the taxable year 1969 and short-term capital gains during the taxable year 1971 as a result of the sale of a residence at 2501 Barcelona Drive, Fort Lauderdale, Florida;
5. Whether Anthony and Dorothi Astone are liable for the addition to tax for fraud under section 6653(b) for the taxable years 1966 through 1971 or, alternatively, whether the assessment of the deficiencies against Anthony and Dorothi Astone for the taxable years 1966 and 1970 is permissible under section 6501(e)(1)(A);
6. Whether Dorothi Astone qualifies as an innocent spouse under the provisions of section 6013(e) for the taxable years 1966 through 1971;
Docket No. 2107-76. 7. Whether petitioner Newburgh Moving and Storage, Inc. (Newburgh), had unreported business income for the taxable years ended September 30, 1965 through September 30, 1971, in the amounts determined by the respondent;
8. Whether Newburgh had business expenses for the taxable years ending September 30, 1965 through September 30, 1971, inclusive, in the amounts determined by the respondent;
9. Whether Newburgh is entitled to net operating loss deductions in the amounts of $406.10 and $4,191.83 for its taxable years ending September 30, 1967, and September 30, 1970, respectively;
10. Whether Newburgh is entitled to an equipment loss in the amount of $2,313.34 for its taxable year ending September 30, 1971;
11. Whether Newburgh is liable for the addition to tax for fraud under section 6653(b) for its taxable years ending September 30, 1965, through September 30, 1971, or, alternatively, whether the assessment of the deficiencies against Newburgh for its taxable years ending September 30, 1965, through September 30, 1970, is barred by the statute of limitations;
Docket No. 2108-76. 12. Whether Dorothi Astone received unreported net long-term capital gains as a result of the sale of a motel in 1965; and
13. Whether Dorothi Astone is liable for the addition to tax for fraud under section 6653(b) for the taxable year 1965, or, alternatively, whether she is liable for the additions to tax under section 6651(a)(1) and section 6653(a).
This case was stipulated in part and those facts are so found. The several stipulations of fact and the exhibits attached thereto are incorporated herein by this reference.
Newburgh Moving and Storage, Inc. (Newburgh), petitioner in docket No. 2107-76, is a corporation with its principal office located at 615 Union Avenue, Newburgh, New York, as of the date its petition was filed in docket No. 2107-76. Newburgh was incorporated in the State of New York on May 28, 1964, and is engaged primarily in the moving and storage business. During the period from May 28, 1964, through December 31, 1971, there were 150 shares of Newburgh's common stock issued and outstanding. Anthony Astone owned 50 shares, Dorothi Astone owned 50 shares and Cary Essert (Dorothi Astone's son) owned 50 shares. During this same period, Anthony Astone was the president, Cary Essert was the vice president, and Dorothi Astone was the secretary and treasurer of Newburgh.
The Federal income tax returns of Newburgh for its fiscal years ending September 30, 1965, through September 30, 1971, were prepared by Philip DiPrima, a registered public accountant in the State of New York.3 A notice of deficiency relating to those several taxable years was sent to Newburgh by certified mail on December 17, 1975.
Newburgh filed its Federal income tax returns (Forms 1120) for the taxable years ended September 30, 1965, through September 30, 1971, inclusive, with the District Director of Internal Revenue, Albany, New York, on December 6, 1967, December 6, 1967, February 16, 1970, February 16, 1970, April 28, 1971, September 9, 1971, and December 20, 1971, respectively. Newburgh reported gross receipts in the following amounts on its Federal income tax returns for those taxable years:
Taxable Year Ending Reported
September 30 Gross Receipts
1965 ........... $ —0—
1966 ........... 46,092.33
1967 ........... 61,561.65
1968 ........... 84,698.34
1969 ........... 92,319.88
1970 ........... 205,464.88
1971 ........... 206,574.48
Anthony and Dorothi Astone, petitioners in docket No. 2095-76, are husband and wife and resided at 284 S.W. 33rd Court, Fort Lauderdale, Florida, as of the date they filed their petition in docket No. 2095-76. Dorothi Astone resided at the same address as of the date she filed her petition in docket No. 2108-76. A notice of deficiency was sent to Mr. and Mrs. Astone by certified mail on December 17, 1975; said notice of deficiency resulted in the petition being filed in docket No. 2095-76. A second notice of deficiency was also sent to Mrs. Astone by certified mail on December 17, 1975; said notice of deficiency resulted in the petition being filed in docket No. 2108-76.
Mrs. Astone did not file a Federal income tax return for the taxable year 1965. Mr. and Mrs. Astone filed their joint Federal income tax returns for the calendar years 1966 through 1971, inclusive, with the District Director of Internal Revenue, Albany, New York. Mr. and Mrs. Astone filed their joint Federal income tax returns for the taxable years 1969 and 1970 on April 26, 1971. The amounts of gross income stated in their Federal income tax returns for the taxable years 1969 and 1970 are $12,460 and $17,569.59, respectively.
In December of 1957, Dorothi Astone purchased the Taghkanic Motel in West Tacomic, New York, for $53,000. On September 10, 1959, she purchased a piece of land next to the Taghkanic Motel for $1,500, which was used as a driveway for the motel. On or about May 4, 1965, Mrs. Astone sold the Taghkanic Motel and the adjoining parcel to Robert and Eunice Keute for $60,000 and paid a $3,000 selling commission to a real estate broker as a result of the sale. Mr. and Mrs. Keute gave Dorothi Astone a second mortgage in the amount of $15,000 which bore interest at a rate of 6 percent in connection with their purchase of the Taghkanic Motel.
Robert and Eunice Keute paid interest on the second mortgage to Dorothi Astone in the following amounts during the years 1965-1971:
Year Amount
1965 ..................... $450.00
1966 ..................... 815.63
1967 ..................... 703.13
1968 ..................... 590.63
1969 ..................... 478.13
1970 ..................... 365.25
1971 ..................... 98.81
None of these interest payments was reported on the joint Federal income tax returns filed by Dorothi and Anthony Astone for the taxable years 1966 through 1971. All of the second mortgage payments, which include both principal and interest, were made by means of checks drawn by Eunice Keute on the Long Island National Bank and made payable to Mrs. Astone. Mrs. Astone endorsed each of these checks.
In early 1966, Mrs. Astone used the net proceeds from the sale of the Taghkanic Motel to purchase a parcel of real estate located in Orange County, New York. Thereafter, Mrs. Astone constructed a commercial building on this tract and leased it to Newburgh. Mr. and Mrs. Astone borrowed funds from the First National Bank of Highland (First National) to finance the construction of the building. These and other loans were later secured by a mortgage on the real estate in the amount of $35,000 which was given by Mrs. Astone to First National. Although both Mr. and Mrs. Astone signed the mortgage and installment note on May 5, 1966, in favor of First National, Mrs. Astone had legal title to the property on that date, and continued to have sole legal title until the property was sold at some point after January 1, 1975.
Mrs. Astone reported the gross receipts and deducted the expenses relating to the real property which was leased to Newburgh on the joint Federal income tax returns she filed with Mr. Astone for the taxable...
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