Kudo v. Commissioner
| Decision Date | 12 November 1998 |
| Docket Number | Docket No. 19181-94.,Docket No. 467-95.,Docket No. 466-95.,Docket No. 19180-94.,Docket No. 10667-94. |
| Citation | 76 T.C.M. 817 |
| Parties | Shigenori Kudo and Motomi Kudo, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
| Court | U.S. Tax Court |
John Gigounas, San Francisco, Calif., and Edward B. Simpson, for the petitioners. Allan D. Hill, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined deficiencies in, and additions to, petitioners' Federal income taxes as follows:
All section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.
The issues for decision are set forth below.
Shigenori Kudo and Motomi Kudo (Docket Nos. 10667-94 and 19180-94)
After concessions,2 the following issues remain in dispute:
(1) Whether petitioners Shigenori Kudo (Scott) and Motomi Kudo (Motomi)(hereinafter collectively referred to as the Kudos) received unreported income in the amounts of $55,979 and $57,795 for 1990 and 1991, respectively, as shown by unexplained bank deposits made by them during those years. We hold that they received unreported income in the amounts decided herein.
(2) Whether the Kudos are liable for accuracy-related penalties for negligence under section 6662(a) for 1990 and 1991. We hold that they are.
Yoshinori Takao and Estate of Akiko Takao, Deceased, Yoshinori Takao, Successor-in-Interest (Docket Nos. 466-95 and 467-95)
After concessions,3 the following issues remain in dispute:
(1) Whether petitioners Yoshinori Takao (Yoshinori) and
Akiko Takao (Akiko)(hereinafter collectively referred to as the Takaos) received unreported taxable income in the amounts of $122,483, $75,421, $114,935, and $109,094 for 1988, 1989, 1990, and 1991, respectively, as shown by unexplained bank deposits made by them during those years. We hold that they received unreported income in the amounts decided herein.
(2) Whether the Takaos received additional unreported income in the amounts of $9,000 and $58,320 for 1988 and 1989, respectively, as shown by certain cash purchases made by them during those years. We hold that they received additional unreported income in the amounts decided herein.
(3) Whether the Takaos are entitled to investment interest deductions in the amounts of $55,320, $38,355, $30,000, and $13,850 for 1988, 1989, 1990, and 1991, respectively. We hold that they are not.
(4) Whether the Takaos are liable for an addition to tax for late filing under section 6651(a) for 1988. We hold that they are.
(5) Whether the Takaos are liable for an addition to tax for negligence under section 6653(a)(1) for 1988 and accuracy-related penalties for negligence under section 6662(a) for 1989, 1990, and 1991. We hold that they are.
(6) Whether the Takaos are liable for an addition to tax for substantial underpayment of tax under section 6661 for 1988. We hold that they are.
Toraya Corporation (Docket No. 19181-94)
After concessions,4 the following issues remain in dispute:
(1) Whether petitioner Toraya Corp. (Toraya) received unreported income from sales in the amounts of $94,500, $102,275, $81,506, and $58,271 for 1988, 1989, 1990, and 1991, respectively, as shown by cash deposits made by the Kudos5 and cash deposits and cash purchases made by the Takaos during those years. We hold that Toraya received unreported income in the amounts decided herein.
(2) Whether Toraya is entitled to deduct payments, classified as office expenses, made to Motomi in 1988 and 1989 in the amounts of $7,933 and $12,000, respectively. We hold that it is to the extent decided herein.
(3) Whether Toraya is entitled to claim or treat as cost of goods sold the payments made to Joan Takao (Joan) and Junichi Takao (Junichi) in the amounts of $27,000 to Joan in 1988, and $7,100 to Joan and $4,000 to Junichi in 1989. We hold that it is entitled to claim them to the extent decided herein.
(4) Whether Toraya is entitled to claim as cost of goods sold $19,917 in 1989, representing the beginning inventory balance of a restaurant Toraya closed that year. We hold that it is to the extent decided herein.
(5) Whether Toraya is liable for an addition to tax for late filing under section 6651(a) for 1988.6 We hold that it is.
(6) Whether Toraya is liable for an addition to tax for negligence under section 6653(a)(1) for 1988, and accuracy-related penalties under section 6662(a) for 1989 through 1991. We hold that it is.
(7) Whether Toraya is liable for an addition to tax for substantial underpayment of tax under section 6661 for 1988. We hold that it is.
(8) Alternatively, if the Court determines that Toraya had unreported income from unreported sales, whether it is entitled to theft loss deductions for 1988 through 1991. We hold that it is not.
Some facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
When Scott and Motomi filed their petitions herein, they resided in Burlingame, California. In 1990 and 1991, and for previous years, the Kudos were employed by Toraya, which owned and operated two Japanese restaurants, one located in Berkeley, California (Berkeley restaurant), and the other located at 1734 Post Street, in San Francisco, California (Post Street restaurant). The Kudos were employed at the Post Street restaurant.7 Motomi was the manager of that restaurant. Yoshinori and Akiko, Motomi's father and mother, owned all of the shares of Toraya. Akiko died about 10 months before this case was tried.
Motomi had attended college. She took business and accounting courses in high school but not in college. Scott was born and educated in Japan. He studied English in Hawaii and business administration at the University of San Francisco. Scott is generally able to speak and understand English, but he is not completely fluent in or comfortable with it. At trial, Scott testified with the aid of an interpreter.
Motomi's duties at the Post Street restaurant generally consisted of seating customers, answering the telephone, and taking care of the cash register. At times she also washed dishes and cleaned up when there was no one else around to help. Scott never handled the cash register or had anything to do with cash at the Post Street restaurant.
The Kudos reported the following items of income on their 1990 and 1991 Federal income tax returns.
1990
Item Amount
Wages
Scott ................ $14,400
Motomi ............... 14,400
Total wages ........ $28,800
Interest .............. 4,263
Refund of State Taxes . 805
_______
Total ................ $33,868
1991
Item Amount
Wages
Scott ................ $19,200
Motomi ................ 19,200
_______
Total wages ........ $38,400
Interest .............. 4,068
Refund of State Taxes . 540
_______
Total ............... $43,008
The Kudos received additional payments from Toraya in 1990 and 1991 as follows:
1990
Amount Treatment by Toraya
Motomi ............................. $25,230 Deducted as purchase expenses
Motomi ............................. 3,600 Deducted as child care expenses
Scott .............................. 3,600 Deducted as truck expenses
Motomi ............................. 7,933 Deducted as office expenses
_______
Total ........................... $40,363
1991
Amount Treatment by Toraya
Motomi ............................. $24,000 Deducted as purchase expenses
Motomi ............................. 12,000 Deducted as office expenses
_______
Total ........................... 36,000
Those additional payments were not reported on the Kudos' Forms W-2 for 1990 and 1991, and the payments were not reported as income by them on the tax...
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