Extrusions Division, Inc. v. Commissioner
| Citation | 68 T.C.M. 1423 |
| Decision Date | 14 December 1994 |
| Docket Number | Docket No. 23062-92. |
| Parties | Extrusions Division, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Frank G. Pollock and Douglas J. Van Der Aa, 300 Ottawa Ave., N.W., Grand Rapids, Mich., for the petitioner. James F. Mauro, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in, and additions to, petitioner's Federal income tax:
Additions to Tax
-----------------------------------------------------
Section Section Section Section
Taxable Year Ended Deficiency 6653(a)(1)1 6653(a)(1)(A) 6653(a)(1)(B) 6661(a)
March 31, 1988 .............. $40,828 $ -- $2,041 $ * $ 9,002
March 31, 1989 .............. 69,477 3,474 -- -- 13,241
* 50 percent of the interest due on the portion of the underpayment attributable to negligence. Respondent
determined that the entire underpayment was attributable to negligence
The issues remaining for decision are:
(1) Is petitioner entitled to a depreciation deduction for each of its taxable years ended March 31, 1988, and March 31, 1989, for certain antique automobiles? We hold that it is not.
(2) Is petitioner liable for the additions to tax under section 6653(a)(1)(A) and (B) for its taxable year ended March 31, 1988, and the addition to tax under section 6653(a)(1) for its taxable year ended March 31, 1989? We hold that it is.
(3) Is petitioner liable for the addition to tax under section 6661(a) for each of its taxable years ended March 31, 1988, and March 31, 1989? We hold that it is.
Some of the facts have been stipulated and are so found.
Petitioner is a Michigan corporation that had its principal office and mailing address in Grand Rapids, Michigan, at the time the petition was filed. James D. Azzar (James Azzar) has been the sole shareholder of petitioner since its formation during 1975. He also serves as its president and sole officer.
During the taxable years at issue, petitioner's primary business activity was acting as a sales representative for Azzar Store Equipment Corporation (ASE), which had taken over from petitioner the manufacture of plastic parts. During those years, ASE paid petitioner commissions for the sale of those parts. Sam Assar, James Assar's father, is the sole shareholder of ASE. James Assar serves as its secretary-treasurer.
For each of the years at issue, petitioner claimed a depreciation deduction for 11 antique automobiles. Those automobiles, together with 69 other antique cars, were stored in a heated building owned by petitioner.
Of the 11 automobiles at issue, none was ever titled under the name of petitioner.
During at least a portion of the years at issue, at least five of the 11 automobiles at issue, viz., a 1931 Auburn, a 1929 Auburn, a 1929 Rolls Royce, a 1929 LaSalle, and a 1930 Buick Roadster, were titled and licensed in Minnesota under the name of Dealer Motor Vehicles Corporation (DMV), a wholly owned subsidiary of petitioner that was organized under the laws of Minnesota. Minnesota provided special benefits to owners of antique automobiles, including a perpetual license plate.
At least one of the 11 automobiles at issue, viz., a 1932 Packard, was purchased by James Azzar during 1986.
During 1986 and 1987, at least three of the 11 automobiles at issue, viz., a 1929 Packard, a 1929 LaSalle, and a 1930 Buick Roadster, were purchased by E.M.A. Corporation (EMA).2 EMA, a licensed automobile dealer, is owned 40 percent by James Azzar, 39 percent by James Azzar's brother, and 21 percent by Sam Azzar. On or about January 17, 1994, EMA, through its secretary-treasurer James Azzar, assigned all of its right, title, and interest in those three automobiles to petitioner.3
The remaining four automobiles at issue, viz., a 1926 Stutz, a 1928 Ford Roadster, a 1912 Franklin, and a 1906 Autocar, were purchased during 1986 by an unidentified purchaser from Harrah's Club.
When the 11 automobiles at issue were driven on the Michigan roads, they were driven under the authority of "dealer tags" supplied to EMA by the State of Michigan and were insured under a policy maintained by EMA.
OpinionPetitioner bears the burden of proving that respondent's determinations in the notice of deficiency (notice) are erroneous. Rule 142(a); Welch v. Helvering [3 USTC ¶ 1164], 290 U.S. 111, 115 (1933). It has attempted to satisfy its burden through testimonial and documentary evidence. Petitioner's only witness on its behalf was James Azzar, its sole shareholder and president. Much of his testimony is uncorroborated and served the interests of his wholly owned corporation, petitioner herein. We found much of James Azzar's testimony to be questionable. Under the circumstances, we are not required to, and we do not, rely on that testimony to support petitioner's positions in this case. See Estate of DeNiro v. Commissioner [84-2 USTC ¶ 9862], 746 F.2d 327, 330-331 (6th Cir. 1984), affg. in part and remanding in part [Dec. 39,305(M)] T.C. Memo. 1982-497; Lovell & Hart, Inc. v. Commissioner [72-1 USTC ¶ 9273], 456 F.2d 145, 148 (6th Cir. 1972), affg. per curiam [Dec. 30,453(M)] T.C. Memo. 1970-335; Tokarski v. Commissioner [Dec. 43,168], 87 T.C. 74, 77 (1986); Hradesky v. Commissioner [Dec. 33,461], 65 T.C. 87, 90 (1975), affd. per curiam [76-2 USTC ¶ 9703] 540 F.2d 821 (5th Cir. 1976).
Before turning to the principal issues presented, we shall address petitioner's contentions regarding the Court's rulings at trial on certain evidentiary matters.4
Petitioner argues that the Court improperly sustained respondent's objection to the introduction of certain documents that were not provided to respondent at least 15 days prior to the first day of the trial session. The Court's standing pretrial order provides in relevant part:
Any documents or materials which a party expects to utilize in the event of trial (except for impeachment), but which are not stipulated, shall be identified in writing and exchanged by the parties at least 15 days before the first day of the trial session. The Court may refuse to receive in evidence any document or material not so stipulated or exchanged, unless otherwise agreed by the parties or allowed by the Court for good cause shown.
The trial session in the instant case was set to begin on January 31, 1994. The documents in question were not shown to respondent until late in the morning on that date. At trial, respondent objected to the introduction of those documents by petitioner on the ground that she would be prejudiced because she did not have sufficient time to verify their authenticity or otherwise to investigate their source and the facts surrounding them.
In response to respondent's evidentiary objection to the documents in question, petitioner claimed that its delay in providing those documents to respondent was for good cause. In support of that position, petitioner contended at trial that James Azzar had not located those documents until the weekend prior to the date of trial. Petitioner also asserted that James Azzar's delay in locating the documents was due to the fact that petitioner was not aware until sometime during January 1994, less than 30 days before the date set for trial, that respondent was challenging whether it in fact owned the 11 automobiles at issue during the period for which it claimed the depreciation deductions at issue.
At trial, the Court sustained respondent's evidentiary objection. We found that petitioner's purported excuse for not providing the documents in question to respondent until January 31, 1994, did not represent good cause for its failure to comply with the Court's standing pretrial order and that respondent would have been prejudiced by introduction of the documents in question. The Court hereby affirms that ruling.5
Respondent stated in the notice for the years at issue that petitioner had not established that it had a "capital interest" in the 11 automobiles at issue. In the context of a determination disallowing petitioner's claimed depreciation deductions, we think it clear that a capital interest in the automobiles at issue, as used in the notice, means a capital investment in those cars, which, as discussed below, is one of the prerequisites for a taxpayer's entitlement to a depreciation deduction. Thus, petitioner should have been aware when it received the notice that respondent was challenging petitioner's ownership of, or other capital investment in, those automobiles. It is also noteworthy that respondent represented at trial, and petitioner did not dispute, that during both the audit process and again after the petition in this case was filed she made general requests to petitioner for all documents that would support its depreciation of the 11 automobiles at issue. Respondent also specifically requested documentation of ownership at a conference between the parties on or about December 8, 1993, and again in a follow-up telephone conversation during early January 1994. The foregoing circumstances led the Court to find that petitioner had no good cause for failing to provide respondent with the documents in question, as required by the Court's standing pretrial order. The Court also found that respondent would have been prejudiced by introduction of those documents because she did not have sufficient time to verify their authenticity or otherwise to investigate their source and the facts surrounding them.
Petitioner contends that it was prejudiced by the Court's sustaining an objection made by respondent during petitioner's redirect...
To continue reading
Request your trial