Gollin v. Commissioner

• Decision Date: 09 October 1996
• Docket Number: Docket No. 21847-90.,Docket No. 19612-90.,Docket No. 16922-90.
• Citation: 72 T.C.M. 897
• Parties: Stuart A. and Harriet J. Gollin, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner.
• Court: U.S. Tax Court

72 T.C.M. 897

T.C. Memo. 1996-454

Stuart A. and Harriet J. Gollin, et al.¹ v. Commissioner.

Docket No. 16922-90.

Docket No. 19612-90.

Docket No. 21847-90.

United States Tax Court.

Filed October 9, 1996.

Stuart A. Smith and David H. Schnabel, for the petitioners in Docket Nos. 16922-90 and 19612-90. Charles Fredericks, Jr. and Stephanie Fredericks, pro se in Docket No. 21847-90. Louise R. Forbes, Mary P. Hamilton, and William T. Hayes, for the respondent in Docket No. 16922-90. Paul Colleran and William T. Hayes, for respondent in Docket No. 19612-90. Gregory S. Nickerson and Frances Ferrito Regan, for the respondent in Docket No. 21847-90.

                CONTENTS
                [CCH Pages]
                MEMORANDUM FINDINGS OF FACT AND OPINION .........................................       899
                OPINION OF THE SPECIAL TRIAL JUDGE ..............................................       899
                FINDINGS OF FACT ................................................................       901
                  A. The Plastics Recycling Transactions ........................................       901
                  B. the Partnerships ...........................................................       901
                  C. Stuart Becker and Steven Leich .............................................       902
                  D. Petitioners and Their Introduction to the Partnership Transactions .........       903
                    1. Stuart and Harriet J. Gollin .............................................       903
                    2. Myron and Patricia Fishbach ..............................................       904
                    3. charles fredericks, Jr. and Stephanie Fredericks .........................       905
                

                OPINION .........................................................................       906
                  A. Section 6653(a)—Negligence .................................................       907
                    1. The So-Called Oil Crisis .................................................       908
                    2. Petitioners' Purported Reliance on Tax Advisers ..........................       909
                      a. The Circumstances Under Which a Taxpayer
                         May Avoid Liability Under Section 6653(a)(1)
                         and (2) Because of Reasonable Reliance
                         on Competent and Fully Informed Professional
                         Advice .................................................................       910
                      b. Becker .................................................................       910
                      c. Hertan .................................................................       912
                      d. Steele, Cohen, and Porter ..............................................       913
                    3. the Private Offering Memoranda ...........................................       914
                    4. Miscellaneous ............................................................       915
                    5. Conclusion as to Negligence ..............................................       918
                  B. Section 6659—Valuation Overstatement .......................................       918
                    1. The Grounds for Petitioners' Underpayments ...............................       918
                    2. Concession of the Deficiency .............................................       920
                    3. Section 6659(e) ..........................................................       921
                  C. Petitioners' Motions For Leave To File Motion For Decision Ordering Relief
                     From the Negligence Penalty and the Penalty Rate of Interest and To File
                     Supporting Memorandum of Law ...............................................       922
                

MEMORANDUM FINDINGS OF FACT AND OPINION

DAWSON, Judge:

These cases were assigned to Special Trial Judge Norman H. Wolfe pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 183. They were tried and briefed separately but consolidated for purposes of opinion. All section references are to the Internal Revenue Code in effect for the tax years in issue, unless otherwise indicated. All Rule references are to the Tax Court Rules of Practice and Procedure. The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

WOLFE, Special Trial Judge:

These cases are part of the Plastics Recycling group of cases. For a detailed discussion of the transactions involved in the Plastics Recycling cases, see Provizer v. Commissioner [Dec. 48,102(M)], T.C. Memo. 1992-177, affd. without published opinion 996 F.2d 1216 (6th Cir. 1993). The facts of the underlying transactions and the Sentinel recyclers in these cases are substantially identical to those in the transaction considered in the Provizer case.

In notices of deficiency, respondent determined the following deficiencies in and additions to petitioners' Federal income taxes:

                Penalty                   Additions to Tax
                                                                   -------   ------------------------------------------------
                                                                     Sec.       Sec.         Sec
                Docket No.   Peitioner         Year   Deficiency   6621(c)   6653(a)(1)   6653(a)(2)   Sec. 6659    Sec. 6661
                 16922-90    Stuart A. and
                             Harriet J
                             Gollin ........   1979    $ 11,8881 3       $  594   4       --       $ 3,566         --
                                               1980       2,7281 3          136   4       --           818         --
                                               1982       9,348      3          467            5         2,804     $2,337   6
                 19612-90    Myron and
                             Patricia
                             Fishbach ......   1982      17,471      3          873.55         5            --      2,941.75
                 21847-90    Charles
                             Fredericks, Jr
                             and Stephanie
                             Fredericks ....   1982     128,8802 3        6,444            5       30,752.70    6,592.756
                1 The deficiencies in Docket No. 16922-90 for taxable years 1979 and 1980 result all or in part from disallowance of
                investment tax credit carrybacks and business energy credit carrybacks from taxable year 1982
                2 The deficiency in docket No. 21847-90 arose in part from respondent's disallowance of certain tax benefits flowing
                from petitioners Fredericks' investment in B & H Shipping Associates V (B & H Shipping). On May 30, 1991, the parties
                filed a stipulation of settled issues resolving all of the issues related to the investment in B & H Shipping
                3 Sec. 6621(c) was repealed by sec. 7721(b) of the Omnibus Budget Reconciliation Act of 1989 (OBRA 89), Pub. L
                101-239, 103 Stat. 2106, 2399, effective for tax returns due after Dec. 31, 1989, OBRA 89 sec. 7721(d), 103 Stat. 2400.
                The repeal does not affect the instant cases. The annual rate of interest under sec. 6621(c) for interest accruing after
                Dec. 31, 1984, equals 120 percent of the interest payable under sec. 6601 with respect to any substantial underpayment
                attributable to tax-motivated transactions.
                4 The notice of deficiency in docket No. 16922-90 lists the additions to tax for negligence for taxable years 1979 and
                1980 under sec. 6653(a)(1). For taxable years 1979 and 1980, the addition to tax for negligence was provided for under
                sec. 6653(a).
                5 50 percent of the interest payable with respect to the portion of the underpayment attributable to negligence.
                Respondent determined that the portion of the underpayment attributable to negligence was $9,348 in docket No.
                16922-90, $11,767 in docket No. 19612-90, and $128,880 in docket No. 21847-90.
                6 The Sec. 6661 determination is in the alternative to the sec. 6659 addition to tax.
                

On March 2, 1994, respondent filed a first amendment to answer in docket No. 19612-90. Respondent asserted therein a lesser deficiency of $17,445, a lesser addition to tax for negligence under section 6653(a)(1) in the amount of $872, and an addition to tax for valuation overstatement under section 6659 in the amount of $4,132. Respondent also asserted that the interest under sections 6653(a)(2) and 6621(c) was to be computed on $17,445 instead of $11,767. In addition, respondent conceded the addition to tax determined under section 6661.

The parties in these consolidated cases filed Stipulations of Settled Issues concerning the adjustments relating to their participation in the Plastics Recycling Program. In docket Nos. 16922-90 (the Gollins) and 19612-90 (the Fishbachs), the stipulations provide:

1. Petitioners are not entitled to any deductions, losses, investment credits, business energy investment credits or any other tax benefits claimed on their tax returns as a result of their participation in the Plastics Recycling Program.

2. The underpayments in income tax attributable to petitioners' participation in the Plastics Recycling Program are substantial underpayments attributable to tax-motivated transactions, subject to the increased rate of interest established under I.R.C. § 6621(c), formerly § 6621(d).

3. This stipulation resolves all issues that relate to the items claimed on petitioners' tax returns resulting from their participation in the Plastics Recycling Program, with the exception of petitioners' potential liability for additions to the tax for valuation overstatements under I.R.C. § 6659 and for negligence under the applicable provisions of § 6653(a).

4. With respect to the issue of the addition to the tax under I.R.C. § 6659, Petitioners do not intend to contest the value of the Sentinel Recycler or the existence of a valuation overstatement on the Petitioners' returns; however, Petitioners reserve their right to argue that the underpayment in tax is not attributable to a valuation overstatement within the meaning of I.R.C. § 6659(a)(1), and that the Secretary should have waived the addition to tax pursuant to the provisions of I.R.C. § 6659(e).

In their stipulation of settled issues, petitioners in docket No. 21847-90 (the Fredericks) conceded: (1) The section 6621(c) interest; (2) the tax benefits claimed on their tax returns from their participation in the Plastics Recycling Program; and (3) the section 6659 addition to tax on the portion of their underpayment attributable to the disallowance of...