Estate of Johnson v. Commissioner of Internal Revenue, 072001 ustax, 14518-97, 14519-97,, 14520-97, 14521-97,, 14522-97.

Docket Nº14518-97 14519-97 14520-97 14521-97 14522-97.
Opinion JudgeThe opinion of the court was delivered by: Halpern, Judge
Party NameESTATE OF FRANK JOHNSON, DECEASED, LARRY T. JOHNSON, PERSONAL REPRESENTATIVE AND ESTATE OF KATHARINE JOHNSON, DECEASED, LARRY T. JOHNSON, PERSONAL REPRESENTATIVE, ET AL., *FN1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
AttorneyKenneth B. Wheeler, for petitioners.
Case DateJuly 20, 2001

T.C. Memo. 2001-182

ESTATE OF FRANK JOHNSON, DECEASED, LARRY T. JOHNSON, PERSONAL REPRESENTATIVE AND ESTATE OF KATHARINE JOHNSON, DECEASED, LARRY T. JOHNSON, PERSONAL REPRESENTATIVE, ET AL., *FN1 PETITIONERS

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Nos. 14518-97 14519-97 14520-97 14521-97 14522-97.

UNITED STATES TAX COURT

July 20, 2001

Kenneth B. Wheeler, for petitioners.

The opinion of the court was delivered by: Halpern, Judge

The opinion of the court was delivered by: Halpern, Judge [8] T.C. Memo. 2001-182 [9] MEMORANDUM FINDINGS OF FACT AND OPINION [10] These five cases have been consolidated for trial, briefing, and opinion. Respondent, by two notices of deficiency dated April 4, 1997, determined deficiencies, additions, and penalties with respect to Federal income taxes owed by petitioners the Estate of Frank Johnson, Larry T. Johnson, Personal Representative, and the Estate of Katherine Johnson, Larry T. Johnson, Personal Representative (hereinafter referred to as petitioners). Such deficiencies, additions, and penalties are on account of returns of income tax made by Frank and Katherine Johnson (sometimes decedents), and are as follows: [11] Additions to Tax and Penalties [12] Docket No. Year Deficiency Sec. 6653 (b)(1) Sec. 6653 (b)(2) Sec. 6653 (b)(1)(A) Sec. 6653 (b)(1)(B) Sec. 6663 Sec. 6661 [13] 14518-97 1983 $37,058 $18,529 fn1 - - - $9,265 [14] 14519-97 1984 39,763 19,882 fn2 - - - 9,941 [15] 1985 51,732 25,866 fn3 - - - 12,933 [16] 1986 43,537 - - $32,653 fn4 - 10,884 [17] 1987 67,496 - - 50,622 fn5 - 16,874 [18] 1988 74,169 55,627 - - - - 18,542 [19] 1989 73,600 - - - - $55,200 - [20] 1990 96,275 - - - - 72,206 - [21] fn1 50 percent of the interest due on $37,058. [22] fn2 50 percent of the interest due on $39,763. [23] fn3 50 percent of the interest due on $51,732. [24] fn4 50 percent of the interest due on $43,537. [25] fn5 50 percent of the interest due on $67,496. [26] By notices of liability dated April 4, 1997, respondent asserted transferee liability against the following petitioners relating to the above deficiencies, additions to tax, and penalties to the extent of the net value of assets they purportedly received from decedents, *fn2 as follows: [27] Docket Net Value of [28] No. Transferee Assets Asserted [29] 14520-97 Larry T. Johnson $861,668 [30] 14521-97 Sylvia Johnson 229,685 [31] 14522-97 Ronnie Johnson 766,003 [32] The issues for decision are as follows: [33] (1) Whether the statute of limitations bars assessment of the deficiencies for each of the years in issue, [34] (2) whether decedents understated their income for each of the years in issue, [35] (3) whether decedents' capital gain income should be increased for 1989, *fn3 [36] (4) whether decedents' taxable Social Security income should be increased for each of the years 1985 through 1990, [37] (5) whether decedents' self-employment taxes under section 1401 should be increased for each of the years in issue, [38] (6) whether decedents may increase their self-employment tax deduction for 1990, [39] (7) whether decedents are entitled to a married couples deduction for each of the years 1983, 1984, 1985, and 1986, [40] (8) whether decedents are liable for the additions to tax or penalties for fraud under sections 6653(b) or 6663, as applicable, for each of the years in issue, [41] (9) whether decedents are liable for additions to tax under section 6661 for substantial understatement of income for each of the years 1983 through 1988,

[42] (10) whether petitioner Larry Johnson is liable as a transferee of Frank and Katherine Johnson for $861,668, [43] (11) whether petitioner Sylvia Johnson is liable as a transferee of Frank and Katherine Johnson for $229,685, [44] (12) whether petitioner Ronnie Johnson is liable as a transferee of Frank and Katherine Johnson for $766,003. Unless otherwise noted, 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. For convenience, monetary amounts have been rounded to the nearest dollar. References to cash include cash equivalents such as cashier's checks and money orders. [45] FINDINGS OF FACT [46] Some of the facts have been stipulated and are so found. The stipulation of facts, amendment to stipulation of facts, first supplemental stipulation of facts, and second supplemental stipulation of facts filed by the parties, together with the exhibits attached thereto, are incorporated herein by this reference. Some of respondent's proposed findings of fact have been conceded by petitioners, and, accordingly, they are so found. Some of petitioners' proposed findings of fact have been conceded by respondent and, accordingly, they are so found. [47] Petitioner Larry Johnson (Larry) is here in his own right, in docket No. 14520-97, and, also, as personal representative of the estates of both Frank T. and Katherine Johnson. He resided in Longwood, Florida, when he filed the petitions in his case and in petitioners' cases. Petitioner Ronnie Johnson (Ronnie) resided in Longwood, Florida, when he filed the petition in his case. Petitioner Sylvia Johnson (Sylvia) resided in Longwood, Florida, when she filed the petition in her case. [48] I. Facts Relating to Issues Involving Deficiencies [49] A. Background [50] Frank Johnson (Frank) was born on December 12, 1918. Katherine Stanton Johnson (Katherine) was born on December 25, 1923. They were raised in the gypsy culture, custom, and tradition. Frank and Katherine married in the gypsy custom around 1938. They moved to Florida during the late 1960s. During the years in issue, Frank and Katherine lived in a house located in Longwood, Florida (Longwood property). Frank died at the age of 74 on September 27, 1993. Katherine died at the age of 72 on June 9, 1996. [51] Frank and Katherine had one son, Larry, and two daughters, Patricia and Janie. At the time of trial, Larry had seven children, among whom are Ronnie and Sylvia. In addition to their own children, Frank and Katherine raised Ronnie and Sylvia (grandchildren) in the gypsy culture, custom, and tradition. Hereinafter, reference to the Johnson family means Frank, Katherine, Larry, Ronnie, and Sylvia, collectively. [52] During the years in issue, Larry was married to Nancy Johnson (Nancy). They lived in a separate residence from Katherine and Frank during those years. Ronnie lived with Frank and Katherine until approximately February 1985. During 1985 through 1990, Ronnie was married to Linda Johnson (Linda), and they lived in a separate residence from Frank and Katherine. Sylvia came to live with Frank and Katherine at least by 1983. Her boyfriend, Jack Miller, moved into the Longwood property in late 1986. Sylvia and Jack Miller married in 1987, and their child, Nicole, was born in 1988. Sylvia, Jack Miller, and Nicole lived in the Longwood property until August 1990 when they moved into a separate residence. [53] While living with Frank and Katherine, Sylvia performed many services for them, including grocery shopping, paying bills, and accompanying them to their doctors' offices. When her help was needed, she assisted Katherine in getting out of bed, bathing, and dressing. [54] In June or July 1990 Katherine hired Carolyn White (Carolyn) to perform housekeeping and caregiver duties for Katherine and Frank. Carolyn's husband, Jack White, burglarized the Longwood property in November 1990 and stole a safe which he claimed contained $200,000 in cash together with jewelry, bank books, stocks, bonds, and coins. Frank and Katherine reported to the police the theft of $30,000 in cash and over $100,000 in jewelry. The police subsequently recovered the jewelry and all but $16,000 of the cash. Jack White was convicted of the theft. Carolyn pleaded guilty to being an accessory after the fact and was put on probation for 5 years. [55] B. Tax Returns

[56] 1. Frank and Katherine's Returns [57] Frank was retired during the years in issue. Before, during, and after the years in issue, Katherine operated a palmistry business out of the Longwood property under the name "Madame Katherine". For some of the years, Sylvia helped Katherine in that palmistry business. [58] Frank and Katherine filed timely joint Federal individual income tax returns for 1983 through 1985. They filed late returns for 1986, 1987, and 1988 on December 5, 1989, after Internal Revenue Service (IRS) Revenue Officer Robert Budde (Revenue Officer Budde) served a summons requesting information needed to prepare delinquent tax returns for 1986 through 1988. Frank and Katherine filed timely joint Federal individual income tax returns for 1989 and 1990. On their returns for the years in issue, Frank and Katherine claimed exemptions for themselves and no exemptions for dependents. [59] On Schedules C, Profit or Loss From Business, filed with the returns for 1983 through 1985 and for 1990, *fn4 Frank and Katherine reported the following gross receipts, expenses, and net income from the palmistry business: [60] Year Gross Receipts Business Deductions Net Income [61] 1983 $16,550 $10,069 $6,481 [62] 1984 15,800 9,609 6,191 [63] 1985 19,550 11,009 8,541 [64] 1990 8,000 250 7,750 [65] Frank and Katherine did not file any Schedules C with the returns for 1986 through 1989. Business deductions claimed on the Schedules C for 1983, 1984, and 1985 included advertising expenses of $4,029, $4,109, and $5,109, respectively. The Schedule C filed with the 1990 return reported no advertising expenses. From 1988 through 1990, Katherine's advertising expenses included the cost of a television (T.V.) commercial that Katherine had taped on September 28, 1988, for viewing on Fox TV Channel 35. *fn5 Miss Lisa Ruby began managing Katherine's TV ad account in late 1989, and thereafter she periodically visited with Katherine at the Longwood property...

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