Kaliban v. Commissioner
| Decision Date | 16 June 1997 |
| Docket Number | Docket No. 4253-89.,Docket No. 27660-89.,Docket No. 27659-89.,Docket No. 10803-89.,Docket No. 10802-89.,Docket No. 4252-89. |
| Citation | 73 T.C.M. 3024 |
| Court | U.S. Tax Court |
| Parties | Robert D. and Patricia K. Kaliban, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
Stuart A. Smith, New York, N.Y., and David H. Schnabel, for the petitioners. Donald A. Glasel and Frances Ferrito Regan, for the respondent in Docket Nos. 4252-89 and 27659-89. Wendy Sands and Frances Ferrito Regan, for the respondent in Docket No. 4253-89. Mitchell B. Hausman and Frances Ferrito Regan, for the respondent in Docket No. 10802-89. Jennifor J. Kohler and Frances Ferrito Regan, for the respondent in Docket Nos. 10803-89 and 27660-89.
CONTENTS
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MEMORANDUM FINDINGS OF FACT AND OPINION ........................................... 3026
OPINION OF THE SPECIAL TRIAL JUDGE ................................................ 3026
FINDINGS OF FACT .................................................................. 3027
A. The Plastics Recycling Transactions .......................................... 3027
B. The Partnerships ............................................................. 3027
C. David Alter and Martin Feinstein ............................................. 3028
D. Petitioners and Their Introduction to the Partnership Transactions ........... 3030
1. Robert and Patricia Kaliban .............................................. 3030
2. Steve and Lispet Roland .................................................. 3030
3. Karl and Marjorie Weber .................................................. 3031
4. Lionel and Betty Zimmer .................................................. 3031
OPINION ........................................................................... 3032
A. Section 6653(a)—Negligence ................................................... 3033
1. The So-Called Oil Crisis ................................................. 3033
2. Petitioners' Purported Reliance on Advisers .............................. 3034
3. Miscellaneous ............................................................ 3037
4. Conclusion as to Negligence .............................................. 3040
B. Section 6659—Valuation Overstatement ......................................... 3040
1. The Grounds for Petitioners' Underpayments ............................... 3041
2. Concession of the Deficiencies ........................................... 3042
3. Section 6659(e) .......................................................... 3043
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 ................................................. 3044
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.2 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 facts of the underlying transactions and the Sentinel recyclers in these cases are substantially identical to those considered in the Provizer case.
In four notices of deficiency, respondent determined the following deficiencies in and additions to petitioners' 1981
Federal income taxes:
Additions to Tax
------------------------------------------------
Petitioners Deficiency Sec. 6653(a)(1)1 Sec. 6653(a)(2)1 Sec. 6659
Kaliban ..................... $26,571 $1,328.55 2 $7,971.303
Roland ...................... 27,994 1,399.70 2 8,398.203
Weber ....................... 27,642 1,382 2 8,2933
Zimmer ...................... 27,303 1,365 2 8,191
1 Except for the notice of deficiency issued to the Webers, the notices refer to section 6653(a)(1)(A) and (B)
During 1981, the additions to tax for negligence were provided for under section 6653(a)(1) and (2)
2 50 percent of the interest payable with respect to the portion of the underpayment attributable to
negligence
3 In the alternative to the section 6659 addition to tax, respondent determined an addition to tax under
section 6661 for substantial understatement of liability
Respondent also determined that interest on the deficiencies accruing after December 31, 1984, would be calculated at 120 percent of the statutory rate under section 6621(c).
In another two notices of deficiency, respondent determined deficiencies in the 1982 Federal income taxes of the Kalibans and the Zimmers in the amount of $204 each, plus additions to tax for negligence under section 6653(a)(1) in the amount of $10.20 each, and under section 6653(a)(2) on 50 percent of the interest payable with respect to $204.3
The parties in each of these cases filed Stipulations of Settled Issues concerning the adjustments relating to petitioners' participation in the Plastics Recycling Program. The stipulations generally provide:4
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, the 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).
Long after the trials of these cases, in each case petitioners 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 in October and November of 1995. Petitioners concurrently lodged with the Court motions for decision ordering relief from the additions to tax for negligence and the increased rate of interest, with attachments and memoranda in support of the motions. Subsequently, respondent filed objections, with attachments and memoranda in support thereof, and petitioners thereafter filed reply memoranda. For reasons discussed in more detail at the end of this opinion, and also in Farrell v. Commissioner [Dec. 51,421(M)], T.C. Memo. 1996-295, these motions shall be denied; see also Sann v. Commissioner [Dec. 52,079(M)], T.C. Memo. 1997-259; Friedman v. Commissioner [Dec. 51,704(M)], T.C. Memo. 1996-558; Jaroff v. Commissioner [Dec. 51,671(M)], T.C. Memo. 1996-527; Gollin v. Commissioner [Dec. 51,591(M)], T.C. Memo. 1996-454; Grelsamer v. Commissioner [Dec. 51,530(M)], T.C. Memo. 1996-399; 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 the additions to tax for negligence under section 6653(a)(1) and (2); and (2) whether petitioners are liable for the additions to tax under section 6659 for underpayments of tax attributable to valuation overstatements.
Some of the facts have been stipulated in each case and are so found. The stipulated facts and attached exhibits are incorporated in the respective cases by this reference.
These cases concern petitioners' investments in two limited partnerships that leased Sentinel expanded polyethylene (EPE) recyclers: Clearwater Group (Clearwater) and Poly Reclamation Associates (Poly Reclamation). Petitioners Kaliban, Roland, and Zimmer are limited partners in Poly Reclamation. Petitioners Weber were limited partners in Clearwater. For convenience we refer to these partnerships collectively as the Partnerships.
The Clearwater partnership and the transactions involving the Sentinel EPE Recyclers leased by Clearwater were considered in Provizer v. Commissioner, supra. The transactions involving the Sentinel EPE recyclers purportedly leased by Poly Reclamation are substantially identical to the Clearwater transactions. Petitioners have stipulated...
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