Falligan v. C.I.R., 122193 FEDTAX, 27813-87

Docket Nº:27813-87, 17293-88.
Opinion Judge:PETERSON, Special Trial Judge: BEGHE, Judge:
Party Name:William F. and Diane M. FALLIGAN, III, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Doyle D. and Shirley J. PRESCOTT, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Declan J. O'Donnell, Englewood, CO, for petitioners. Patricia Anne Golembiewski, San Francisco, CA, for respondent. Kenneth A. Thomas, Dallas, TX, for petitioner.
Case Date:December 21, 1993
Court:United States Tax Court
 
FREE EXCERPT

66 T.C.M. (CCH) 1673

William F. and Diane M. FALLIGAN, III, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Doyle D. and Shirley J. PRESCOTT, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 27813-87, 17293-88.

United States Tax Court

December 21, 1993

Declan J. O'Donnell, Englewood, CO, for petitioners.

Patricia Anne Golembiewski, San Francisco, CA, for respondent.

MEMORANDUM OPINION

PETERSON, Special Trial Judge:

These cases were assigned pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182. Unless otherwise indicated, 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.

On April 9, 1993, these cases were consolidated for trial, briefing, and opinion pursuant to Rule 141. Unless otherwise indicated, use of the term " petitioners" in this opinion refers both to petitioners William F. and Diane M. Falligan and petitioners Doyle D. and Shirley J. Prescott.

Respondent determined deficiencies in petitioners' Federal income tax and additions to tax and increased interest attributable to the deficiencies as follows:

William F. and Diane M. Falligan, Docket No. 27813-87:
Additions to Tax and Increased Interest
Sec. Sec. Sec. Sec. Sec.
Year Deficiency 6653(a)(1) 6653(a)(2) 6659 6661 6621(c)
1981 $5,580 $278.50 1 $1,671.00 -- To be determined
1982 4,813 240.65 2 1,443.90 -- To be determined
1983 5,687 284.35 3 1,706.10 $1,422 To be determined
1984 6,169 308.45 4 1,850.70 1,542 To be determined
Doyle D. and Shirley J. Prescott, Docket No. 17293-88:
Additions to Tax and Increased Interest
Sec. Sec. Sec. Sec. Sec.
Year Deficiency 6653(a) 6653(a)(1) 6653(a)(2) 6659 6621(c)
1980 $ 2,283 $114 -- -- $ 685 To be determined
1981 3,958 -- $198 1 1,187 To be determined
1982 9,566 -- 478 2 2,870 To be determined
1983 9,136 -- 457 3 2,741 To be determined
1984 10,846 -- 542 4 3,254 To be determined
1985 3,202 -- 160 5 961 To be determined
In the stipulation of facts filed May 11, 1993, petitioners conceded that they are liable for the respective determined deficiencies for each of the years in issue. On May 28, 1993, a stipulation of partial settlement was filed in docket No. 27813-87, in which respondent conceded that petitioners William F. and Diane M. Falligan are not liable for the determined additions to tax under section 6653(a)(1) and (2), and increased interest under section 6621(c), for the taxable years 1981, 1982, and 1983. Respondent also conceded in docket No. 17293-88, where the petitioners are Doyle D. and Shirley J. Prescott, that she bears the burden of proof with regard to the addition to tax under section 6661 for the taxable years 1982, 1983, and 1984, since the issue was raised by respondent in an amendment to answer. After concessions, the issues for decision are: (1) Whether petitioners in docket No. 27813-87 are liable for the determined additions to tax for negligence under section 6653(a) for their taxable year 1984, and whether petitioners in docket No. 17293-88 are liable for the additions to tax for negligence under section 6653(a) for their taxable years 1980-1985, inclusive; (2) whether petitioners in docket No. 27813-87 are liable for the determined addition to tax under section 6661 for their taxable years 1983 and 1984, and whether petitioners in docket No. 17293-88 are liable for the determined addition to tax under section 6661 for their taxable years 1982, 1983, and 1984 [1]; (3) whether petitioners in docket No. 27813-87 are liable for increased interest under section 6621(c) for their taxable year 1984, and whether petitioners in docket No. 17293-88 are liable for increased interest under section 6621(c) for their taxable years 1980-1985, inclusive; and (4) if petitioners in docket No. 17293-88 are liable for the determined additions to tax in issue, whether petitioner Shirley J. Prescott is entitled to relief from such liability under the " innocent spouse" provisions of section 6013(e). Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by reference. Petitioners resided in the State of Colorado at the time their petitions were filed. In 1983, petitioners Doyle D. and Shirley J. Prescott (Mr. and Mrs. Prescott) invested in the Gold Depository and Loan Co., Inc. (GD & L). GD & L purported to be in the business of promoting and selling marine dry cargo containers, which are cargo containers used to transport dry cargo from port-to-port on ocean traveling vessels. Mr. and Mrs. Prescott invested in GD & L in 1983 by signing a Container Purchase and Lease Agreement (1983 Agreement) with GD & L, whereby they purportedly purchased marine dry cargo shipping containers. Under the 1983 Agreement, Mr. and Mrs. Prescott purportedly purchased twenty-seven 40-foot cargo containers for $3,000 each, and twenty-nine 20-foot cargo containers for $1,500 each, for a total investment of $124,500. Mr. and Mrs. Prescott paid $6,225 in cash under the 1983 Agreement, which amount represented 5 percent of the purchase price. The balance of the amount due for the investment purportedly was represented by a note in the amount of $118,275. In fact, Mr. and Mrs. Prescott did not sign a note or any other instrument evidencing indebtedness to GD & L or to any other entity for the $118,275 balance, and never made any payments of interest or principal towards any such indebtedness. In September 1984, Mrs. Prescott entered into a second agreement (1984 Agreement) to invest in GD & L. The only relevant distinction between the 1983 and 1984 Agreements was the amount invested. Under the 1984 Agreement, Mr. and Mrs. Prescott purportedly purchased sixteen 40-foot cargo containers for $4,000 each, and forty-eight 20-foot cargo containers for $2,000 each, for a total purported investment of $160,000. Mr. and Mrs. Prescott paid $8,000 in cash under the 1984 Agreement, which amount represented 5 percent of the purchase price, with the 95 percent balance of the investment purportedly represented by a note in the amount of $152,000. However, as with the 1983 Agreement, in fact no such note or any other instrument evidencing indebtedness to GD & L or any other entity for the balance of the total investment existed, and Mr. and Mrs. Prescott never made any payments of interest or principal towards any such indebtedness. Also in September 1984, petitioners William F. and Diane M. Falligan (Mr. and Mrs. Falligan) invested in GD & L. Mr. and Mrs. Falligan invested in GD & L by signing an Agreement identical to the Prescott's 1984 Agreement, except for the amount of the investment. Under the terms of their Agreement, Mr. and Mrs. Falligan purportedly purchased eighteen 40-foot cargo containers for $4,000 each, and fifty-four 20-foot cargo containers for $2,000 each, for a total purported investment of $180,000. Mr. and Mrs. Falligan paid $9,000 under their Agreement, which amount represented 5 percent of the purchase price. The balance of the amount due for the investment purportedly was represented by a note in the amount $171,000. In fact, no such note or any other form of indebtedness existed, and Mr. and Mrs. Falligan never made any payments of interest or principal towards any such indebtedness. Under their Agreements, petitioners authorized GD & L to serve as their nonexclusive agent for a period of 35 months, for the purpose of leasing their purportedly purchased cargo containers for use on ships travelling to and from various United States ports. As compensation for this service, petitioners agreed that GD & L was to receive an annual lease management fee in the amount of 15 percent of the income generated through the leasing of the cargo containers. On December 31, 1983, GD & L issued to Mr. and Mrs. Prescott an income and expense sheet showing the amount of rental income purportedly earned from the rental of their cargo containers during 1983. On December 31, 1984, GD & L issued to Mr. and Mrs. Prescott and to Mr. and Mrs. Falligan, respectively, income and expense sheets showing the amount of rental income purportedly earned from the rental of their cargo containers during 1984. However, in fact, the information provided on each of these income and expense sheets was fictitious, and in fact, neither GD & L nor any GD & L agent or representative ever purchased or contracted to purchase any marine dry cargo containers for subsequent sale to petitioners, or leased any such containers for petitioners or on their behalf. Prior to investing in the GD & L cargo container program, petitioners had no experience in the marine dry cargo container industry. Moreover, prior to investing in GD & L, petitioners consulted no industry experts, read no industry publications, nor otherwise researched the marine dry cargo container industry. In fact, in deciding to invest in GD & L during the years in issue, petitioners relied almost exclusively on the opinions of petitioners' tax return preparer, and on a tax accountant and friend of the tax return preparer. Neither individual had any experience working in the marine dry cargo container industry. On their joint income tax returns filed for the taxable years 1983 and 1984, Mr. and Mrs. Prescott reported the income tax consequences of their GD & L investments, including claimed deductions for depreciation and other expenses and claimed investment tax credits in the respective amounts of $12,450 and $16,000. Mr. and Mrs. Prescott...

To continue reading

FREE SIGN UP