Grant v. Commissioner
| Decision Date | 18 April 1994 |
| Docket Number | Docket No. 14882-89.,Docket No. 13765-89.,Docket No. 13766-89. |
| Citation | 67 T.C.M. 2669 |
| Court | U.S. Tax Court |
| Parties | Beverly Grant and Thomas Edward Grant, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
John Kennedy Lynch, for the petitioners. Carol A. Szczepanik, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in Federal individual and corporate income tax and additions to tax under sections 6653(b)2 (fraud) and 6661 (substantial understatement of income tax) against petitioners as follows:
Additions to Tax
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Petitioner Year1 Deficiency Sec. 6653(b) Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661
Thomas Edward ........ 1981 $11,534 $5,767 -- -- --
Grant 13766-89 ....... 1982 71,574 -- $35,787 2 $17,894
Beverly Grant and
Thomas Edward Grant
13765-89 ............. 1983 15,233 -- 7,617 2 3,808
Tavern of ............ 1981 800 400 -- -- --
Chester, Inc. ........ 1982 31,847 -- 15,924 2 --
14882-89 ............. 1983 62,434 -- 33,194 3 12,223
1 Calendar years for the individual petitioners and fiscal years ending July 31 for the corporate petitioner
2 The addition to tax is 50 percent of the interest on the entire deficiency
3 The addition to tax is 50 percent of the interest on $66,387, the entire tax liability, because the tax return
was filed late. See sec. 6653(c)(1)
By answer to the petition of Tavern of Chester, Inc. (docket No. 14882-89), respondent asserts an increased deficiency in the amount of $4,600, for a total deficiency for Tavern of Chester, Inc.'s fiscal 1982 in the amount of $36,447, as well as corresponding increases in the additions to tax under paragraphs (1) and (2) of section 6653(b). See sec. 6214(a).
After concessions by both sides,3 the issues for decision are as follows:
(1) Whether the assessment and collection of deficiencies against petitioner Thomas Edward Grant (hereinafter sometimes referred to as Grant) for 1981, 1982, or 1983 are barred by the statute of limitations, sec. 6501(a), or are allowed (a) under the fraud exception, sec. 6501(c)(1) (as to 1981, 1982, and 1983), or (b) under the 25-percent-omission exception, sec. 6501(e)(1)(A) (as to 1982 and 1983), to the general period of limitations.
(2) Whether the assessment and collection of deficiencies against petitioner Tavern of Chester, Inc. (hereinafter sometimes referred to as Tavern), for fiscal 1981, 1982, or 1983 are barred by the statute of limitations, sec. 6501(a), or are allowed under the fraud exception, sec. 6501(c)(1), to the general period of limitations.
(3) If assessment and collection are not barred against Grant or Tavern for 1981, 1982, or 1983, then for each year that is open —
(a) whether that petitioner is liable for civil fraud additions to tax under section 6653(b) (for 1981) and under sections 6653(b)(1) and 6653(b)(2) (for 1982 and 1983) and, as to section 6653(b)(2), in what amount;
(b) what the amount is of Grant's and Tavern's unreported gross income;
(c) whether Tavern's reported cost of goods sold should be decreased by $17,958 for its fiscal 1983; and
(d) whether Tavern is entitled to deductions for travel and promotion expenses and for moving expenses in amounts greater than those allowed in the notice of deficiency.
Some of the facts have been stipulated; the stipulation and the stipulated exhibits are incorporated herein by this reference.
When the respective petitions were filed in the instant consolidated cases, Beverly Grant, see supra note 3, resided in Chardon, Ohio, Grant resided in Mayfield Heights, Ohio, and Tavern had its principal place of business in Chesterland, Ohio.
Grant was graduated from high school in 1967. His pre-Tavern experience in the food service industry includes the following: 4 years with Roy Rogers in Ohio; 2 years as an assistant manager for Minnie Pearl's in Tennessee; 3 years leasing and managing his own coffee shop and two subsidiaries in Ohio; and 4 years in management training at Church's Fried Chicken in Georgia.
In 1980, he decided to open his own restaurant. Tavern was incorporated in 1980 in Ohio by Don P. Brown (hereinafter sometimes referred to as Brown), an attorney. Brown was Tavern's sole shareholder and president through at least 1982. However, as a practical matter, Brown was Tavern's lawyer and not its owner or decision maker. Brown responded to occasional requests for legal information from Tavern's accountant. Brown did not play any role in Tavern's business operations or financial operations. Brown did not invest in Tavern. Brown's law firm prepared Tavern's minute books, but Brown was not involved in any of Tavern's other books and records. Brown signed Tavern's fiscal 1981 and 1982 Federal income tax returns. Grant was the sole beneficial shareholder and Brown was merely his nominee. At some point in 1983, Grant became Tavern's president and sole shareholder.
On August 10, 1980, Tavern bought the Valley Villa Inn restaurant in Chesterland, Ohio, for $50,000. The purchase and sale agreement allocated $7,000 of that price to "licenses and permits". Grant's father provided the money for the purchase.
The restaurant was in poor condition; Grant's father helped him pay for necessary repairs and improvements. Once the restaurant opened, Grant tended the restaurant's bar, cooked, cleaned, made repairs, and kept the records, often working 18-hour days. He lived in an apartment above the restaurant.
Tavern operated the bar and restaurant during 1980 through 1983. Grant managed and operated Tavern from 1980 through 1983.
Grant had personal bank accounts at Women's Federal, Cardinal Federal, and Com-Bank/Pine Castle during 1981 through 1983. He made deposits into these accounts as shown in table 1.
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