Christian v. Commissioner
| Decision Date | 21 July 1994 |
| Docket Number | Docket No. 35390-87.,Docket No. 36499-87.,Docket No. 23453-86. |
| Citation | 68 T.C.M. 129 |
| Parties | George and Laura Christian, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
| Court | U.S. Tax Court |
George Christian and Laura Christian, pro se in Docket No. 23453-86. George Christian, Jr., and Marion E. Christian, pro se in Docket No. 35390-87. Clyde A. Miles, pro se in Docket No. 36499-87. Pamela S. Wilson, Rajiv Madan, and Arnold J. Gould, for the respondent.
Memorandum Findings of Fact and Opinion
These cases were assigned to Chief Special Trial Judge Peter J. Panuthos pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 183.2 The Court agrees with and adopts the opinion of the Chief Special Trial Judge which is set forth below.
Panuthos, Chief Special Trial Judge:
Respondent determined deficiencies in and additions to petitioners' Federal income taxes as follows:
Additions to Tax
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Sec. Sec. Sec. Sec. Sec. Sec
Docket No. Petitioner(s) Year Deficiency 6659 6661 6653(a) 6653(a)(1) 6653(a)(2) 6621(c)
23453-861 George Christian ........ 1979 $ 2,818.96 *2 -- -- -- -- *3
and ..................... 1980 1,565.78 *2 -- -- -- -- *3
Laura Christian ......... 1982 3,301.00 *2 -- -- -- -- *3
35390-87 George Christian, ....... 1979 9,844.00 $2,953 -- $492 -- -- 3
Jr., and Marion ......... 1980 9,212.00 2,764 -- 461 -- -- 3
E. Christian ............ 1982 15,008.00 2,533 $1,641 -- $750 50% of the interest due on $15,008 3
36499-87 Clyde A. Miles .......... 1979 6,977.00 2,093 -- 349 -- -- 3
1980 8,057.00 2,417 -- 403 -- -- 3
1981 10,618.00 2,710 -- -- 452 50% of the interest due on $9,032 3
1982 9,263.00 2,779 2,316 -- 463 50% of the interest due on $9,263 3
* This determination was asserted in respondent's answer
1 The notice of deficiency in this docket included the 1983 and 1984 tax years. By order dated Feb. 17, 1988, said years were dismissed for lack of jurisdiction on the basis that
such years were subject to the TEFRA partnership provisions
2 30 percent of the portion of the underpayment which is attributable to the valuation overstatement
3 120 percent of the interest payable under Sec. 6601 with respect to any substantial underpayment attributable to tax-motivated transactions
The issues for decision are:
1. Whether petitioners are entitled to losses and credits claimed with respect to purported investments in master recording lease transactions;
2. whether petitioners are liable for additions to tax for negligence, valuation overstatement, and substantial understatement; and
3. whether petitioners are liable for increased interest under section 6621(c).
Additional issues raised by various petitioners are as follows:
4. Whether there was an improper reopening or second examination with respect to the examination of one of the partnerships involved;
5. whether petitioners were improperly denied an Appeals Office conference and, if so, the effect of such denial; and
6. whether the statute of limitations bars the assessment and collection of deficiencies with respect to the 1979 or 1980 tax liabilities of George Christian, Jr., and Marion E. Christian.
These consolidated cases have a long and tortured history. While we will not attempt to detail the entire procedural history of these cases, we provide some general background information.
The cases were set for trial for June 22, 1993, by order of the Court dated February 26, 1993. By order dated April 29, 1993, the cases were continued for trial to September 20, 1993. Attached to the order setting each case for trial was a Standing Pre-trial Order (SPTO). The SPTO required among other things that the parties: (1) Communicate and attempt to stipulate all facts and documents not in dispute; (2) exchange documents with the opposing party in advance of trial; (3) prepare and serve a pre-trial memorandum on the opposing party and the Court 15 days prior to trial (a sample form of a pre-trial memorandum was attached to the SPTO). The SPTO also informed the parties that sanctions could be imposed for failure to comply with the SPTO.
Respondent essentially complied with the requirements of the SPTO. George Christian, Jr., alleged that he did not receive the SPTO.3 The records of the Court reflect that the SPTO was served on all parties in these cases. Despite petitioners' failure to comply with the SPTO, the Court, in its discretion, permitted petitioners to proceed to trial. As a result of petitioners' failure to comply with the SPTO, much time was consumed in attempting to arrive at an agreed stipulation of facts. It was not until the late afternoon of the third day of trial that the process of offering approximately 150 documents for stipulation was completed. The Court painstakingly considered separate objections relating to the proposed exhibits and ruled on the admissibility of many said documents.
At the conclusion of the trial, the Court, in accord with its Rules, ordered that briefs be filed. Petitioners made a plea to the Court that, as pro se petitioners, they would prefer that no briefs be filed. The Court, while ordering that briefs be filed in the usual manner, clearly indicated that the failure of petitioners to file a brief or strictly comply with the required format of a brief would not be held against them.
After petitioners received copies of the typewritten transcript of the trial, they alleged that there were substantial "gross errors" in the transcript. The Court provided a procedure wherein all parties could listen to the original audio tapes (in the custody of the Court) and compare same with the typewritten transcript. Petitioners again renewed previously denied motions seeking custody of the original audio tapes. Petitioners effectively refused the invitation of the Court to compare the typewritten transcript with the original audio tapes.
As a result of the delay occasioned by the continuing allegations of petitioners concerning the accuracy of the transcript and petitioners' unwillingness to accept the method provided by the Court to resolve the dispute, the Court ordered that no briefs be filed by any of the parties. The Court has thus proceeded to render this opinion without the benefit of briefs from any of the parties. Petitioners have continued with additional post-trial motions, including a mandamus action in the Court of Appeals for the Fourth Circuit (In Re: Christian, No. 94-1433, filed Apr. 13, 1994).4
At the time of the filing of the petitions herein, petitioners George Christian and Laura Christian (Docket No. 23453-86) resided in Baltimore, Maryland; petitioners George Christian, Jr., and Marion E. Christian (Docket No. 35390-87) resided in Columbia, Maryland; and petitioner Clyde A. Miles (Docket No. 36499-87) resided in Temple Hills, Maryland.
Audio Leasing Corp.4a (hereinafter ALC) was a New Hampshire corporation established in 1980 which claimed to provide financing for the music, entertainment, and communications industry by acquiring audio masters and communications masters for lease. An audio master (master) is a tape or other medium upon which a specific performance or program has been electronically recorded, and from which copies of the performance or program can be made for commercial use. If the master is multitrack, it is generally mixed and balanced and then made available for commercial use. In the instant cases, the masters in issue were recorded onto audio cassette tapes for purposes of distribution.
Generally, ALC would acquire a master from a seller. ALC would lease to investors the rights to distribute copies of the master for a period of 7-1/2 years. At the end of the lease period, all rights in the master reverted back to ALC. In the promotional material offered by ALC, there is some discussion concerning opportunities and markets for potential distribution of a master recording. There is also a discussion concerning the economics of the investment. In addition, there is discussion concerning the tax incentives associated with such investment. This discussion includes two legal tax opinions and a full-page chart. According to the chart, a lessee would receive tax benefits in excess of the amount of cash paid. The promotional material indicates that investors were eligible for an investment tax credit (ITC) based upon the purchase price of the master recording. In addition, the material indicates that investors could claim a deduction for expenses associated with their investment, including lease payments and distribution costs.
On or about December 31, 1982, ALC purportedly purchased a master recording of the music artist Bob Marley titled "Wings of a Dove". The purchase price of the master recording was purportedly $550,000. A representative of ALC signed a...
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