Norman v. C.I.R., 052787 FEDTAX, 7361-77

Docket Nº:7361-77, 7362-77, 8398-77, 8399-77, 9052-77, 9053-77, 9330-78, 6462-79, 6463-79, 6464-79, 6465-79, 6466-79, 9392-79.
Opinion Judge:STERRETT, CHIEF JUDGE:
Party Name:JAMES G. NORMAN, ET AL.,[1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:John H. MacVey, for the petitioners. Cynthia J. Mattson, for the respondent.
Case Date:May 27, 1987
Court:United States Tax Court
 
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53 T.C.M. (CCH) 905

JAMES G. NORMAN, ET AL., [1] Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 7361-77, 7362-77, 8398-77, 8399-77, 9052-77, 9053-77, 9330-78, 6462-79, 6463-79, 6464-79, 6465-79, 6466-79, 9392-79.

United States Tax Court

May 27, 1987

Respondent made a series of determinations with respect to real estate transactions that were engaged in by petitioner A and various partnerships and corporations that he controlled.

HELD:

(1) the income from the sales of ownership interests in apartment building FW during 1973 and 1974 is attributable to petitioner-corporation AVL;

(2) the income from the sales of ownership interests in apartment building CC during 1973 and 1974 is attributable to partnership WY;

(3) the income from the sales of ownership interests in apartment building WA during 1975 is attributable to corporation WI;

(4) petitioner A received from petitioner-corporation AVL in 1973 a constructive distribution of property with a fair market value of $396,000;

(5) petitioner A received from corporation WI in 1974 a constructive distribution of property with a fair market value of $200,000;

(6) partnership P was not the owner of apartment building PHRA during the years in question and therefore is not entitled to claim any losses with respect thereto;

(7) petitioner A is not entitled to deduct a loss in 1973 from partnership S;

(8) respondent properly disallowed losses claimed by partnership S in 1974 and 1975;

(9) corporation AR has additional income in 1975 resulting from its receipt of prepaid cash proceeds pursuant to long-term service contracts;

(10) respondent properly disallowed a deduction taken in 1975 by petitioner-corporation REI for a claimed management and consulting expense;

(11) corporation RDM is not entitled to an interest deduction in 1975 for interest accrued on a note payable to a related partnership;

(12) corporation MMB is not entitled to a bad debt deduction in 1975;

(13) corporation EFS is not entitled to claim a loss on the 1975 consolidated Federal income tax return of petitioner- corporation CWI that arose during a period prior to the affiliation of EFS with CWI;

(14) corporation MMB has ordinary income in 1975 in the amount of $181,436 resulting from the loss recaptured upon the worthlessness of the stock of EFS;

(15) petitioner-corporation CWI is liable for an addition to tax pursuant to sec. 6651(a)(1), I.R.C. 1954, for 1975;

(16) petitioner-corporation CWI is liable for an addition to tax pursuant to sec. 6653(a), I.R.C. 1954, for 1975;

(17) partnership CP has unreported note discount income for 1973 and 1974 as determined by respondent;

(18) partnership CP has additional income for 1974 from the sale of certain notes as determined by respondent;

(19) principal payments on certain notes constitute income to partnership CP in 1973 and 1974 as determined by respondent;

(20) partnership CP is not entitled to deduct a portion of a note discount expense claimed in 1974;

(21) partnership CP improperly reported its note discount income for 1975 as determined by respondent;

(22) petitioner A has unreported income for 1973 in the amount of $72,000;

(23) petitioner A is not entitled to deduct a claimed syndication expense in 1973;

(24) respondent properly disallowed a portion of a short- term capital loss claimed by petitioner A in 1973;

(25) petitioner A has additional dividend income in 1974 and 1975 as determined by respondent;

(26) petitioner A is not entitled to deduct a claimed loss from gold futures trading in 1975;

(27) petitioner A is not entitled to deduct a transfer tax that was paid in connection with his purchase of a personal residence in 1974;

(28) petitioner-corporation AVL is not entitled to deduct a claimed note discount expense in 1974;

(29) petitioner-corporation AVL is not entitled to deduct a claimed dealt reduction expense in 1974;

(30) respondent properly disallowed a deduction for an investment reserve expense claimed by corporation REI in 1974;

(31) petitioner CB is not entitled to deduct $1,200 as a charitable contribution in 1975;

(32) petitioner CB is liable for an addition to tax pursuant to sec. 6653(a), I.R.C. 1954, for 1974 and 1975;

(33) petitioner-corporation LAV is liable for an addition to tax pursuant to sec. 6653(a), I.R.C. 1954, for 1974;

(34) petitioner-corporation REI is liable for an addition to tax pursuant to sec. 6653(a), I.R.C. 1954, for 1975; and

(35) petitioner A is liable for an addition to tax for fraud pursuant to sec. 6653(b), I.R.C. 1954, for 1973, 1974, and 1975.

John H. MacVey, for the petitioners.

Cynthia J. Mattson, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

STERRETT, CHIEF JUDGE:

These consolidated cases result from a series of determinations by respondent-with respect to real estate transactions engaged in by petitioner Aleksandrs v. Laurins and various partnerships and corporations that he controlled. The tax years before the Court are 1973, 1974, and 1975. The specific petitioners, docket numbers, years, deficiencies, and additions to tax appear in Appendix A attached hereto.

At the outset, we must state that these cases have been particularly vexatious to the Court. Difficulties were encountered in getting the parties to stipulate evidence and in arriving at a trial date. Petitioners must bear most, and probably all, of the responsibility for these difficulties. The trial itself was lengthy by the standards of this Court. In addition, approximately 400 exhibits were introduced and 35 issues, not including alternative issues, were presented for our consideration. The issues are almost entirely factual in nature. One suspects that petitioners deliberately made the transactions as complex as possible to serve their own purposes. Understandably, respondent's opening brief was 357 pages long, containing detailed proposed findings of fact. Petitioners failed to make proposed findings of fact in the form prescribed by Rule 151(e)(3), [2] and this oversight was clearly not helpful to their cause. In this opinion, we have done our best to straighten out what can only be described as a maze of massive proportions. Having said this, we turn our attention to the task at hand.

After concessions by respondent, the issues for decision are (1) whether the income from the sales of ownership interests in an apartment building known as Fairfax West Apartments in 1973 and 1974 is attributable to petitioner A.V. Laurins & Co., Inc. (AVL); (2) whether the income from the sales of ownership interests in an apartment building known as the Chancellery Cooperative in 1973 and 1974 is attributable to a partnership known as Wyoming Associates; (3) whether the income from the sales of ownership interests in an apartment building known as Wisconsin Apartments in 1975 is attributable to a corporation known as Wisconsin Avenue Associates, Inc. (Wisconsin); (4) whether petitioner Aleksandrs V. Laurins (Aleksandrs) received from AVL in 1973 a constructive distribution of property with a fair market value of $396,000; (5) whether Aleksandrs received from Wisconsin in 1974 a constructive distribution of property with a fair market value of $200,000; (6) whether a partnership known as Pleasant Hill Associates is entitled to claim losses from an apartment building known as the Pleasant Hill Road Apartments; (7) whether Aleksandrs is entitled to deduct a loss in 1973 from a partnership known as Sundown Associates (Sundown); (8) whether respondent properly disallowed certain losses claimed by Sundown in 1974 and 1975; (9) whether a subsidiary of petitioner Consolidated Western Investors, Inc. (CWI), known as Aries Information Systems, has additional income in 1975 as the result of receiving prepaid cash proceeds pursuant to long-term service contracts; (10) whether respondent properly disallowed a deduction taken in 1975 by petitioner Real Estate Equity Management, Inc. (Real Estate, Inc.), for a claimed management and consulting expense; (11) whether a subsidiary of CWI known as Real Development Management, Inc., is entitled to an interest deduction in 1975 for interest accrued on a note payable to a related partnership; (12) whether a subsidiary of CWI known as Metropolitan Mortgage Bankers, Inc. (MMB), is entitled to a bad debt deduction in the amount of $34,326.79 in 1975; (13) whether a subsidiary of CWI known as E.F. Shelney and Co., Inc. (EFS Company), is entitled to claim a loss on the CWI 1975 consolidated Federal income tax return that arose during a period prior to EFS Company's affiliation with CWI; (14) whether MMB has ordinary income in 1975 in the amount of $181,436 resulting from a loss recaptured upon the worthlessness of EFS Company's stock; (15) whether CWI is liable for an addition to tax pursuant to section 6651(a)(1) for the taxable year 1975; (16) whether CWI is liable for an addition to tax for negligence pursuant to section 6653(a) for the taxable year 1975; (17) whether a partnership known as Co-op Mortgage Investment Associates (Co-op) has unreported note discount income in 1973 and 1974; (18) whether Co-op has additional income in 1974 from the sale of certain notes; (19) whether principal payments on certain notes constitute income to Co-op in 1973 and 1974; (20) whether Co-op is entitled to deduct a note discount expense in the amount of $6,351.74 in 1974; (21) whether Co-op improperly reported its note discount income in 1975; (22) whether Aleksandrs has unreported income in 1973 in the amount of $72,000; (23) whether Alekeandrs is entitled to deduct a...

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