Grelsamer v. Commissioner
| Decision Date | 27 August 1996 |
| Docket Number | Docket No. 5788-90.,Docket No. 30317-91. |
| Citation | 72 T.C.M. 524 |
| Parties | Philippe and Nadine Grelsamer v. Commissioner. David E. Morgan v. Commissioner. |
| Court | U.S. Tax Court |
Stuart A. Smith, New York, N.Y., and David H. Schnabel, for the petitioners in Docket Nos. 5788-90 and 30317-91. Gail A. Campbell and Frances Ferrito Regan, for the respondent in Docket No. 5788-90. Wendy Sands and Frances Ferrito Regan, for the respondent in Docket No. 30317-91.
CONTENTS
[CCH Page]
MEMORANDUM FINDINGS OF FACT AND OPINION .................................................. 525
OPINION OF THE SPECIAL TRIAL JUDGE ....................................................... 525
FINDINGS OF FACT ......................................................................... 527
A. The Plastics Recycling Transactions ................................................ 527
B. The Partnerships ................................................................... 527
C. Richard Roberts .................................................................... 528
D. Stuart Becker and Steven Leicht .................................................... 528
E. Petitioners and Their Introduction to the Partnership Transactions ................. 529
1. Philippe and Nadine Grelsamer .................................................. 530
2. David E. Morgan ................................................................ 530
OPINION .................................................................................. 531
A. Section 6653(a)—Negligence ......................................................... 532
1. The So-Called Oil Crisis ....................................................... 532
2. Petitioners' Purported Reliance on Tax Advisers ................................ 534
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 ......................................... 534
b. Green and the Tax Return Preparers ......................................... 535
c. Becker ..................................................................... 535
d. Conclusion as to Petitioners' Underpayments ................................ 536
3. The Private Offering Memoranda ................................................. 537
4. Miscellaneous .................................................................. 539
5. Conclusion as to Negligence .................................................... 540
B. Section 6659—Valuation Overstatement ............................................... 541
1. The Grounds for Petitioners' Underpayments ..................................... 541
2. Concession of the Deficiency ................................................... 542
3. Section 6659(e) ................................................................ 543
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 Memoranda
of Law ............................................................................. 544
MEMORANDUM FINDINGS OF FACT AND OPINION
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.
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 underlying transactions in these cases are substantially identical to the transaction considered in the Provizer case.
In a notice of deficiency dated January 11, 1990, respondent determined a deficiency in the 1982 joint Federal income tax of petitioners Philippe and Nadine Grelsamer and additions to tax for that year under section 6653(a)(1)(A) and (B) for negligence and under section 6659 for valuation overstatement (and in the alternative thereto under section 6661 for substantial underpayment). Respondent also determined that interest on deficiencies accruing after December 31, 1984, would be calculated at 120 percent of the statutory rate under section 6621(c). In her answer to petition, respondent asserted a lesser deficiency in the amount of $26,223 as well as reduced additions to tax in the amount of $6,949 under section 6659, in the amount of $1,158 under section 6653(a)(1), and under section 6653(a)(2) in an amount equal to 50 percent of the interest due on the underpayment attributable to negligence. Respondent also asserted that only $23,163 of the deficiency is subject to the increased rate of interest under section 6621(c).
In a notice of deficiency dated September 30, 1991, respondent determined deficiencies in the 1978, 1980, 1981, and 1982 Federal income taxes of petitioner David E. Morgan (Morgan) in the respective amounts of $23,031, $38,491, $33,928, and $6,618. The deficiencies for taxable years 1978 and 1980 are due all or in part to respondent's disallowance of an investment credit carryback from taxable year 1981. Respondent also determined the following additions to tax.
Additions to Tax
-----------------------------------------
Sec. Sec. Sec. Sec
Year 6653(a) 6653(a)(1) 6653(a)(2) 6659
1978 ........................................ $1,152 -- -- $6,909
1980 ........................................ 1,925 -- -- 2,643
1981 ........................................ -- $1,696 1 4,275
1982 ........................................ -- 331 1 --
1 50 percent of the interest payable with respect to the portion of the underpayment attributable to negligence
In her answer to petition, respondent asserted that interest on deficiencies accruing after December 31, 1984, would be calculated at 120 percent of the statutory rate under section 6621(c).
The parties in these consolidated cases each filed Stipulations of Settled Issues relating to their participation in the Plastics Recycling Program. These stipulations are virtually identical except that petitioner Morgan's is drafted in the singular because he is the sole petitioner in docket No. 30317-91. The stipulations provide, in part:
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).
Petitioner Morgan also stipulated that he did not intend to contest the value of the Sentinel recycler or the existence of a valuation overstatement on his returns, but reserved his right to argue that his underpayments were not attributable to a valuation overstatement and that the section 6659 addition to tax should have been waived by respondent under section 6659(e). In a Second Stipulation of Settled Issues, petitioner Morgan and respondent stipulated that "with respect to the non-plastics recycling issues for the years in issue, the parties agree to the adjustments as set forth in the statutory notice of deficiency."
Long after the trials of these cases, petitioners each filed a Motion 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 under Rule 50. These motions were filed with attached exhibits on September 22, 1995, in docket No. 30317-91 (Morgan), and on October 18, 1995, in docket No. 5788-90 (Grelsamer). On those same dates, petitioners each lodged with the Court a motion for decision ordering relief from the additions to tax for negligence and the increased rate of interest, with attachments, and a memorandum in support of such motion. Subsequently, respondent filed objections, with attachments, and memoranda in support thereof, and petitioners lodged reply memoranda. For reasons discussed in more detail at the end of this opinion and also in Farrell v. Commissioner [Dec. 48,236(M)], T.C. Memo. 1996-295, petitioners' motions shall be denied; see also Zenkel v. Commissioner [Dec. 51,529(M)], T.C. Memo. 1996-398.
The issues remaining in these consolidated cases are: (1) Whether petitioners are liable for additions to tax for negligence under...
To continue reading
Request your trial