Becker v. C.I.R., 88-2178

• Decision Date: 26 April 1989
• Docket Number: No. 88-2178,88-2178
• Parties: -742, 89-1 USTC P 9187 Edward M. BECKER and Alice M. Becker, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 298

868 F.2d 298

63 A.F.T.R.2d 89-742, 89-1 USTC P 9187

Edward M. BECKER and Alice M. Becker, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 88-2178.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 12, 1989.

Decided Feb. 23, 1989.

Rehearing Denied April 26, 1989.

William Randolph Klein, Sarasota, Fla., for appellants.

William S. Rose, Jr., Gary R. Allen, Gilbert S. Rothenberg, and Mary Frances Clark, Washington, D.C., for appellee.

Before WOLLMAN and BEAM, Circuit Judges, and BRIGHT, Senior Circuit Judge.

WOLLMAN, Circuit Judge.

Edward M. Becker and Alice M. Becker appeal from the Tax Court's determination of income tax deficiencies for 1979 and 1980 and liability for increased interest on these deficiencies. We affirm.

In 1979 and 1980, the Beckers invested a total of $12,000 in a tax shelter promotion called "Gold for Tax Dollars." For a complete description of the details of this promotion, see Saviano v. Commissioner, 765 F.2d 643 (7th Cir.1985), the reasoning and holding of which we adopt.

Gold for Tax Dollars was an involved scheme organized primarily for the financial benefit of its initiators and secondarily for the tax benefit of its investors. Under the plan, International Monetary Exchange (IME) would obtain at no charge leases for its investors from a gold mining concession in Panama of French Guiana. Through IME, the investors then would pay mining development expenses to General Miniere, S.A., a mining contractor. To obtain further capital for the operation, IME would sell on behalf of the investors "gold options" to a third party. The purchaser of the gold option was entitled to buy the extracted gold at a set price. The proceeds from the gold option sale were paid to General Miniere by IME for mining expenses. The investors then deducted their initial investment and the proceeds from the gold option sale from their income taxes as mining expenses under 26 U.S.C. Sec. 616(a).

Although the foregoing description outlines the purported manner in which the Gold for Tax Dollars plan operated, in practice the operation was a mere front for a fraudulent operation. The plan primarily produced paper evidence to support tax deductions, but little more. Of the approximately 3,000 mines that were leased by investors, only one was actually worked.

The Beckers invested $12,000 in the Gold for Tax Dollars plan in 1979 and 1980. They then deducted $5,000 for initial mining expenses and $15,000 for a gold option sale in 1979. In 1980, they deducted $7,000 for initial mining expenses and $28,000 for a gold option sale. They did not report the money received from the gold option sales as income in either 1979 or 1980. ¹

In 1983, the Beckers received notice from the Internal Revenue Service that the mining expenses deductions that they had claimed were disallowed because the Beckers had not established that they had acquired an interest in any mineral property, that mining expenses were paid, or that mining transactions had occurred. The IRS also informed the Beckers that the gold option sales proceeds should have been included in their income in the year of receipt and charged the Beckers with negligent or intentional disregard of rules and regulations. See 26 U.S.C. Sec. 6653(a).

The Tax Court ² determined that the Beckers were deficient in their 1979 income tax by $11,247 and in their 1980 income tax by $25,794. The court also found that the Beckers were liable for increased interest for substantial underpayments of tax attributable to tax-motivated transactions. See 26 U.S.C. Sec. 6621(c). The court's ultimate finding of fact was that the Gold for Tax Dollars promotion was a "fraudulent factual sham." We agree.

Title 26 U.S.C. Sec. 616(a) allows taxpayers to deduct "all expenditures paid or incurred during the taxable year for the development of a mine or other natural deposit * * * if paid or incurred after the existence of ores or minerals in commercially marketable quantities has been disclosed." To be entitled to take deductions under this statute, however, the taxpayer must hold a working or operating interest...