Laney v. Commissioner, Docket No. 24510-90.
| Decision Date | 11 September 1997 |
| Docket Number | Docket No. 24510-90. |
| Parties | Melvin J. Laney and Carolyn A. Laney v. Commissioner. |
| Court | U.S. Tax Court |
Respondent determined deficiencies in Federal individual income tax and additions to tax under sections 6651(a)1 (), 6653(a)(1) (negligence, etc.), and 6661 (substantial understatement of income tax liability) against petitioners as follows:
Additions to Tax
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Year Deficiency1 Sec. 6651(a) Sec. 6653(a)(1)(A) Sec. 6653(a)(1)(B) Sec. 6653(a)(1) Sec. 6661
1986 ............ $14,096 $ 331 $705 2 -- $3,524
1987 ............ 9,159 2,052 458 2 -- 2,290
1988 ............ 8,582 429 -- -- $429 2,146
1 Of these amounts, $3,070 for 1987 and $3,776 for 1988 are self-employment taxes under ch. 2; the remainders are
income taxes under ch. 1
2 Fifty percent of the interest due on the entire deficiency. Some parts of the notice of deficiency that list the additions to
tax do not show that respondent determined any additions to tax under sec. 6653(a)(1)(B), but Schedules 5, 8, and 14 of the
notice of deficiency do show these determinations. Taking the 20-page notice of deficiency as a whole, and in light of the fact
that par. 3 of respondent's answer specifically refers to sec. 6653(a)(1)(B) and that petitioners have not raised any objection
to that reference, we conclude that petitioners were not misled by respondent's failure to note the sec. 6653(a)(1)(B)
determinations on several pages of the notice of deficiency where one would have expected the determinations to be noted
Accordingly, we hold that respondent made the above-noted sec. 6653(a)(1)(B) determinations in the instant case's notice of
deficiency. Bokum v. Commissioner [Dec. 46,408], 94 T.C. 126, 127 n. 2 (1990), affd. [93-2 USTC ¶ 50,374] 992 F.2d 1132
(11th Cir. 1993); Saint Paul Bottling Co. v Commissioner [Dec. 24,375], 34 T.C. 1137 (1960)
After concessions by respondent2 and a deemed concession by petitioners,3 the issues for decision are as follows:
(1) Whether petitioners had a binding settlement agreement entitling them to deduct a net operating loss carryover for the years in issue.
(2) Whether petitioners had a 1983 theft loss, or casualty loss, or trade or business loss that could properly be carried over to the years in issue and, if so, then in what amount.
(3) Whether petitioners are liable for a late filing addition to tax under section 6651(a) for 1987.
(4) Whether petitioners are liable for negligence, etc., additions to tax under section 6653(a)(1) for 1986, 1987, and 1988 and if so for 1986 or 1987, then in what amounts.
(5) Whether petitioners are liable for additions to tax under section 6661 for 1986, 1987, and 1988.
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
When the petition was filed in the instant case, petitioners Melvin J. Laney (hereinafter sometimes referred to as Laney) and Carolyn A. Laney resided in Spencerville, Maryland.
Laney has a degree in medicinal chemistry.4 Laney began to develop an expertise in computer work during the 1950's as a high school student. About 1957 Laney won a national prize for a computer program. Laney also received other awards for his computer skills. After he completed his schooling, Laney frequently was called on to use his expertise in designing computer and information systems both in a university setting and professionally.
From about 1971 through 1974 Laney was the Executive Director of the Society for Computer Medicine. He conducted, or was the keynote speaker of, several national conferences for this organization. He also edited journals in the field of computer medicine.
For more than 2 years in the mid-1970's Laney provided consulting services exclusively to the Federal Government. In this period Laney worked as an expert consultant to the National Institutes of Health (hereinafter sometimes referred to as NIH) to develop a national database for laboratory animals. Laney obtained national recognition because of his work at NIH. As a result of the renown and expertise he developed, when Laney left NIH, he was approached by pharmaceutical companies to perform consulting work. In late 1976 or early 1977 Laney began to do consulting work for the Lederle Laboratories Division of American Cyanamid Co., hereinafter sometimes referred to as Lederle. By the end of July 1977 this arrangement was formalized in a consulting contract for work in "toxicology computer systems development".
After Laney began to do consulting work for Lederle, he also began to do consulting work for several other pharmaceutical companies, including the following: Dow Chemical Co., Monsanto Co., Merrill Pharmaceutical Co., and Sterling-Winthrop Research Institute, hereinafter sometimes referred to as Dow, Monsanto, Merrill, and Sterling-Winthrop, respectively.
Laney began his consulting work for Dow in 1979. Around this time Laney visited divisions of Dow in order to meet with scientists who were involved with the production of animal data, and to view the information systems and procedures of these scientists. Laney did this in order to get knowledge to enable him to relate their information systems to the type of information systems that Laney would put into place at the Rodriguez Key project (hereinafter sometimes referred to as R.K.), described infra. Laney's work with Dow continued into at least 1982. Laney consulted with Dow about a computerized system for managing animal data in Dow's toxicology studies. Laney was initially invited to work for Dow because he was working on the information system prototype for R.K. Laney's initial work for Dow was not related to R.K., but was to help Dow's Health and Safety Division construct its own computer centers that could be designed, programmed, and run independent of Dow's controller's office. At some point, Laney also consulted with Dow about problems with "Agent Orange". Eventually Laney advised Dow on how to develop an information system that could communicate with outside sources such as (1) other divisions of Dow located in various places around the world and (2) R.K. As a result of Laney's work with Dow, Dow built a computer center that was tied into an international communications network; the software that was used in this computer center was consistent with software that Laney designed for Lederle and Sterling-Winthrop.
In or around 1978 Laney began to consult for Monsanto. Laney was initially invited to work for Monsanto because he was working on the information system prototype for R.K. Laney consulted with Monsanto about the development of integrated, centralized, information systems for health and safety testing. The information system that Monsanto developed was consistent with the information system that would be put into place at R.K. Laney's consulting work for Monsanto did not involve Monsanto's sponsorship of research at R.K.
During the time that Laney was working on the information system prototype for R.K., he began his consulting work for Merrill. Laney consulted with Merrill about designs for a centralized and integrated information system. This was consistent with the use of the information system prototype for R.K. Although Merrill expressed an interest in sponsoring research at R.K., this sponsorship never occurred.
Laney did consulting work for Sterling-Winthrop from 1980 to at least 1982. Laney was initially invited to work for Sterling-Winthrop because he had designed the information system prototype for R.K. Laney consulted for Sterling-Winthrop to design a centralized and integrated information system for health and safety testing that could communicate with outside sources, such as (1) Sterling-Winthrop divisions, (2) Sterling-Winthrop contractors, and (3) the information system that would be put into place at R.K. As a result of Laney's work for Sterling-Winthrop, Sterling-Winthrop spent substantial amounts for an information system.
In the early 1970's, Laney created a sole proprietorship known as Melvin J. Laney Associates. On March 19, 1981, Laney incorporated Melvin J. Laney Associates, Inc. These businesses are hereinafter sometimes referred to as the Laney Proprietorship and the Laney Corporation, respectively, and as the Laney Entities, in the aggregate. Laney was the sole owner of each of the Laney Entities. The Laney Corporation's only consulting contract was with Sterling-Winthrop.
Laney did some of his consulting work in his office, which was located in a building on the same property as his residence. Laney also traveled to do consulting work. Laney either was reimbursed for his travel related to his consulting work, or he included these costs in his fees; however, Laney was often housed in a corporate suite or motel room when he traveled. In or around 1980 Laney almost completely stopped doing consulting work that was not related to the information system prototype for R.K.
In 1977 Laney began to work on R.K. R.K. involved the development of a primate breeding and vaccine testing facility. On June 24, 1978, Laney bought an island, Rodriguez Key (hereinafter sometimes referred to as the Island), in Monroe County, Florida; the Island was to be used as a situs for R.K. Laney bought the Island for a total of $184,442.20 (purchase price $183,750, closing...
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