Big Hong Ng v. Commissioner
| Decision Date | 02 June 1997 |
| Docket Number | Docket No. 21277-93.,Docket No. 20814-93. |
| Citation | 73 T.C.M. 2900 |
| Parties | Big Hong Ng v. Commissioner. Strong Hope, Ltd. v. Commissioner. |
| Court | U.S. Tax Court |
In Docket No. 20814-93, petitioner Big Hong Ng (Ms. Ng) seeks a redetermination of the following revised tax determinations made by respondent:
Additions to Tax
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Sec. Sec. Sec. Sec. Sec. Sec. Sec
Year Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1) 6653(a)(1)(B) 6654 6661 6662
1986 $1,327,802 $331,951 $66,390 -- 1 -- $331,951 --
1987 830,395 207,850 41,570 -- 1 -- 207,850 --
1988 878,617 219,654 -- $43,930 -- -- 219,654 --
1989 1,431,742 357,936 -- -- -- -- -- $286,348
1990 256,186 64,047 -- -- -- $16,869 -- --
1 50 percent of the interest on the portion of the underpayment attributable to negligence
A substantial portion of the deficiencies and additions to tax was asserted in respondent's amended answer.
In Docket No. 21277-93, petitioner Strong Hope, Ltd. (Strong Hope), a Hong Kong corporation wholly owned by Ms. Ng, seeks a redetermination of the following deficiency and additions to tax:
Additions to Tax
-------------------
Sec. Sec
Year Deficiency 6651(a)(1) 6662
1989 ......... $262,298 $52,460 $52,460
The aforementioned docketed cases have been consolidated for trial, briefing, and opinion.
Following concessions by the parties, the issues remaining for decision are: (1) Whether Ms. Ng had unreported income in the amounts determined by respondent; (2) whether Ms. Ng is entitled to claimed pass-through losses from her S corporation, Hong Kong Restaurant, Inc.; (3) whether Ms. Ng is entitled to defer the gain from the sale of certain real estate pursuant to section 1031; (4) whether Ms. Ng received a liquidating distribution from Strong Hope when that corporation transferred its interest in real estate to her; (5) whether Ms. Ng is entitled to the entire investment interest deduction claimed; (6) whether Ms. Ng is entitled to a claimed net operating loss carryover; (7) whether Ms. Ng is liable for an accuracy-related penalty and for additions to tax for negligence, substantial understatement, failure to file timely returns, and failure to pay estimated tax; (8) whether Strong Hope had discharge of indebtedness income; (9) whether Strong Hope's basis in certain real estate that it transferred should be adjusted as determined by respondent; (10) whether respondent properly disallowed a net operating loss carryover to Strong Hope; and (11) whether Strong Hope is liable for an accuracy-related penalty and for an addition to tax for failure to file a timely return.
All section references are to the Internal Revenue Code for the years under consideration. All Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found. The stipulations of facts and the attached exhibits are incorporated herein by this reference.
Ms. Ng, also known as Don Hong Ng, Bik Hung Ng Leong, and other names, resided in San Francisco, California, at the time she filed her petition. Ms. Ng's tax returns for all years under consideration were untimely filed.
Ms. Ng was born in 1935 and came to the United States from Hong Kong in approximately 1958. She studied English and music in the United States, and became a resident alien shortly after her marriage in 1962 to Sik Chong Leong in Reno, Nevada. They were divorced in 1968 and had no children. Ms. Ng acquired her U.S. citizenship in 1966. Ms. Ng has a son, Timothy Lee, who was born in 1957.
Strong Hope was incorporated in Hong Kong in 1981. It owned a 50-percent undivided interest in a rental property at 850 Stockton Street in San Francisco during part of 1989. Ms. Ng owned the other half interest. In its petition, Strong Hope states its principal place of business to be c/o Poon and Company, CPAs, 43-59 Queens Road East, Hong Kong. Strong Hope's 1989 tax return was untimely filed.
Ms. Ng owned or controlled the following bank accounts during the years under consideration:
Ms. Ng owned interests in the following entities during the years under consideration:
San Francisco
Golden Dragon Restaurant .................................... 50% ownership
Permanent Union Ltd. ........................................ 100%
Strong Hope Limited (Calif.) ................................ 100%
Ocean City Restaurant ....................................... 5%
Seattle:
Hong Kong Inv. Ltd. ......................................... 100%
Hong Kong Restaurant, Inc. .................................. 100%
Ocean City Restaurant ....................................... 8%
Ocean City Investments ...................................... unknown
Hong Kong:
Permanent Union Limited ..................................... 100%
Ocean City Restaurant and Night Club Limited ................ at least 4.5%
Strong Hope ................................................. 100%
Bik Hung Investment Limited ................................. 100%
J.B. Wings .................................................. 50%
Ms. Ng directly or indirectly owned interests in the following properties during the years under consideration:
Property Owner
San Francisco:
1610 Lombard ........................................... Ms. Ng
1733 Larkin ............................................ Ms. Ng
850 Stockton ........................................... Ms. Ng and Strong Hope
857 Clay ............................................... Strong Hope Limited (Calif.)
1835 Franklin .......................................... Ms. Ng
Seattle:
507 Maynard ............................................ Hong Kong Investments
609 South Weller ....................................... Ocean City Investments
Hong Kong:
Flat 1, 41A Stubbs Road ................................ Ms. Ng
Flat 2, 41A Stubbs Road ................................ Ms. Ng
Ms. Ng contends that she has difficulty understanding English, which is not her native language, and that accounts for discrepancies in statements she made during respondent's investigation. Although Ms. Ng's trial testimony was given largely through an interpreter, we found that when using English to testify, she did not have any difficulty.
For convenience and clarity, we have combined additional findings of fact and opinion with respect to each issue.
Issue 1. Unreported Income
The largest adjustments to Ms. Ng's income are based on respondent's determination that Ms. Ng failed to report substantial amounts of income. Specifically, respondent determined that Ms. Ng failed to report: (a) Self-employment income which was deposited into bank accounts she controlled in the amounts of $54,849 in 1986, $50,444 in 1987, $563,513 in 1988, and $346,993 in 1989; (b) income consisting of deposits from Hong Kong into bank accounts she controlled, rental and interest income, and forgiveness of debt income, not subject to self-employment tax in the amounts of $168,300 in 1986, $247,761 in 1987, $170,545 in 1988, $212,459 in 1989, and $93,208 in 1990; and (c) income which was deposited into the tip account, discussed infra, as well as other Hong Kong bank accounts, in the amounts of $1,643,928 in 1986, $242,098 in 1987, $245,355 in 1988, $719,163 in 1989, and $159,153 in 1990.
In the amended answer, respondent asserted additional unreported income, totaling $3,271,690 for the 5 years under consideration, from unexplained deposits to bank accounts in foreign banks. Of this amount, at least $2,577,089 arises from deposits to the tip account, discussed in detail, infra. Respondent bears the burden of proof with respect to the increase in the asserted deficiencies and additions to tax made in the amended answer. Ms. Ng bears the burden of proof with respect to the deficiencies and additions to tax determined by respondent in the notice of deficiency. Rule 142(a).
Ms. Ng claims that respondent's deficiency determination was arbitrarily derived, and as a result, the presumption of correctness generally...
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