Goldberg v. Commissioner
| Decision Date | 11 February 1997 |
| Docket Number | Docket No. 18842-94. |
| Parties | Leo and Alla Goldberg v. Commissioner. |
| Court | U.S. Tax Court |
Joseph E. Mudd and Jeri L. Gartside, for the petitioners. Miles D. Friedman and Zachary W. King, for the respondent.
Tables of Contents
[CCH Pages]
Findings of Fact ................................................... 1991
Petitioners' Residence ............................................. 1991
Malloy Property .................................................... 1992
Exchange Properties ................................................ 1992
Unemployment Compensation .......................................... 1993
Petitioners' Bank Accounts ......................................... 1993
Roman Kortava and Coastline Limited, Inc ........................... 1994
Saddle Rock and Martis Landing ..................................... 1994
Business School .................................................... 1995
Vehicle Resale Business ............................................ 1995
Vladimir Chorny .................................................... 1996
15 Hastings ........................................................ 1996
Clerical Fee ....................................................... 1997
Opinion ............................................................ 1997
Fraud .............................................................. 1997
Unreported Income—Bank Deposits .................................... 1999
Unreported Income—Like-Kind Exchange ............................... 1999
Unreported Income—Unemployment Compensation ........................ 2000
Unreported Income—Kortava .......................................... 2000
Mercedes ....................................................... 2001
Saddle Rock and Martis Landing ................................. 2001
Unreported Income—Deeds in Lieu of Foreclosure ..................... 2002
Unreported Income—Interest ......................................... 2003
Schedule C Income—1990 ............................................. 2003
Business School ................................................ 2003
Vehicle Resale Business ........................................ 2003
Schedule C Expense—1991 ............................................ 2004
Vehicle ReSale Business ........................................ 2004
Business School ................................................ 2004
Unreported Income—Chorny ........................................... 2005
15 Hastings—Option Payment ......................................... 2005
15 Hastings—Lease Versus Sale ...................................... 2006
Unreported Income—Clerical Fee ..................................... 2007
Section 6651(a)(1) Addition to Tax ................................. 2007
Section 6662(a) Penalty ............................................ 2007
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined deficiencies in, additions to, and penalties on petitioners' income taxes as follows:
Additions to Tax and Penalty
---------------------------------------------
Year Deficiency Sec. 6651(a)(1) Sec. 6653(b)(1) Sec. 6663
1988 .............................. $108,150 -- $81,044 --
1990 .............................. 108,277 $27,069 -- $81,208
1991 .............................. 1,926 29,349 -- 86,945
In the alternative to fraud, respondent determined that petitioners were liable for the section 6653(a) addition to tax for negligence for 1988 and the section 6662(a) accuracy-related penalty for 1990 and 1991. 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.
After concessions by the parties, the issues remaining for decision are:
For 1988, whether the statute of limitations bars assessment and, if not, whether petitioners had unreported income from various real estate transactions, unemployment compensation, and unexplained bank deposits and whether they are entitled to deductions relating to their taxi business.
For 1990 and 1991, whether petitioners had various items of unreported income and whether they are entitled to deductions relating to a vehicle resale business and a business school.
For all years, whether petitioners are liable for the additions to tax and penalties determined by respondent.
Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioners, Leo Goldberg (petitioner) and Alla Goldberg (Mrs. Goldberg), were married and resided in Orange County, California, at the time they filed their petition.
Petitioner immigrated to the United States from the Soviet Union in 1977. Petitioner received a degree in engineering from Moscow University, and he earned an M.B.A. from Pepperdine University in December 1987. Petitioner has been involved, at least to some extent, with real estate since 1986. He became familiar with Internal Revenue Code provisions dealing with real estate transactions. He prepared petitioners' tax returns for each of the years in issue. Mrs. Goldberg signed the returns, but petitioner did not go over the contents of the returns with her nor did she review the returns line by line.
Petitioners reported the receipt of the following amounts on their 1988 return:
Rents .......................... $58,955
Interest ....................... 3,359
Dividends ...................... 877
Taxi ........................... 19,500
Petitioners' 1990 and 1991 returns were received by the Laguna Niguel District Office on October 18, 1991, and October 15, 1992, respectively. Although each return indicated that an extension of time to file had been obtained, each reported that no payment had been made with the extension request.
Beginning June 1, 1981, petitioners resided at 2311 Apricot, Irvine, California (Apricot), a condominium with two bedrooms and a loft.
On January 23, 1988, petitioners executed a "Reservation Instrument" and made a deposit to purchase a residence located at 14 Siros, Laguna Niguel, California (14 Siros). They entered into a purchase and sale agreement for 14 Siros on March 15, 1988, agreeing to acquire that residence for $274,900. In March 1988, they executed various documents selecting custom options for paint, tile, and other features of the residence to be completed at 14 Siros.
During 1988, homes in an exclusive gated community in Laguna Niguel were made available to prospective purchasers through a lottery conducted by Standard Pacific, L.P. (Standard Pacific). Petitioners participated in the lottery and were selected to acquire a residence at 25 Hastings, Laguna Niguel, on April 30, 1988. On May 1, 1988, petitioners executed a reservation document and made a deposit for purchase of 25 Hastings.
On or after May 11, 1988, petitioners executed escrow instructions that referred to the purchase of 14 Siros as relating to "a 1031 tax deferred exchange". The exchange provision of the escrow instructions was canceled in June 1988.
Construction at 14 Siros and petitioners' purchase of that property were completed on August 2, 1988.
On August 14, 1988, petitioners executed a purchase contract and escrow instructions for the purchase of 25 Hastings. On escrow instructions and loan applications relating to their purchase of 25 Hastings, petitioners represented that their residence was Apricot. On at least two occasions, petitioner misrepresented his monthly income on residential loan applications.
On August 23, 1988, petitioners hired Donna Nichols (Nichols), a real estate agent, to sell 14 Siros. Nichols lived at 16 Siros. On September 4, 1988, 14 Siros was sold for $385,000.
In September 1988, petitioners entered into an agreement to sell Apricot to Hector David Cordova for $137,000. The sale was completed on November 9, 1988. At the time of the sale, petitioners' adjusted basis in Apricot was $126,543.
Escrow closed on the purchase of 25 Hastings on November 1, 1988. Petitioners occupied 25 Hastings as their principal residence from November 1988 at least through the time of trial of this case in 1996.
At the time that they contracted to purchase 14 Siros, petitioners intended to occupy it as their principal residence. At the time that they contracted to purchase 25 Hastings, however, petitioners abandoned their intention to occupy 14 Siros. Petitioners never occupied 14 Siros as their principal place of residence.
On their 1988 tax return, petitioners reported the sale of Apricot as a sale of business property. They executed a Form 2119, Sale of Your Home, with respect to 14 Siros. They attached this form to their 1988 Federal tax return, thereby claiming the right to defer under section 1034 a gain of $81,555 realized on sale of 14 Siros.
At the time that he prepared and filed petitioners' tax return for 1988, petitioner was familiar with the requirements for deferral of gain under section 1034. Petitioner knew that petitioners did not qualify for deferral with respect to the gain on the property at 14 Siros, but he nonetheless claimed the deferral in order to defeat or avoid the taxes known to be owing on the gain that they realized from sale of that property.
On June 21, 1979, petitioner acquired an undivided one-half interest in property at 8132 Malloy Drive, Huntington Beach, California (Malloy). In July 1988, petitioners entered into an agreement with Irvine...
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