Powerstein v. Comm'r of Internal Revenue
| Decision Date | 16 November 2011 |
| Docket Number | Docket No. 30261-89,Docket No. 13443-92 |
| Parties | ALLEN POWERSTEIN AND RITA POWERSTEIN ROSEN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ALLEN POWERSTEIN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Mitchell I. Horowitz and Micah G. Fogarty, for petitioners.
Stephen R. Takeuchi and Robert W. Dillard, for respondent.
LARO, Judge: At the heart of these cases is petitioner Allen Powerstein (Mr. Powerstein), a former certified publicaccountant (C.P.A.) who in 1993 pleaded guilty to criminal tax evasion in violation of section 7201.2 At issue are the 1984 through 1988 joint Federal income taxes of petitioners Mr. Powerstein and Rita Powerstein Rosen (Ms. Rosen) and the 1989 individual Federal income tax of Mr. Powerstein.
In docket No. 30261-89, petitioners petitioned the Court to redetermine respondent's determination of the following Federal income tax deficiencies and additions to tax:
1Respondent determined that if the addition to tax under sec. 6653(b)(1)(A) applies, then the addition to tax under sec. 6653(b)(1)(B) applies in an amount equal to 50 percent of the interest payable with respect to the portion of the underpayment that is due to fraud.In docket No. 13443-92, Mr. Powerstein petitioned the Court to redetermine respondent's determination of a $49,000 deficiency in his 1989 Federal income tax and a $36,750 fraud penalty under section 6663.
After concessions by the parties,3 we decide: (1) Whether the burden of proof shifts to respondent with respect to his reconstruction of petitioners' net worth for 1984 through 1988. We hold that it does to the extent stated herein; (2) whether petitioners omitted income of $5,668, $42,212, $107,089, $153,670, and $153,351, for 1984 through 1988, respectively. We hold that they omitted income of $3,624, $83,739, $85,702,$145,266, and $142,637, for 1984 through 1988, respectively; (3) whether petitioners are entitled to deductions related to Mr. Powerstein's accounting practice. We hold they are to the extent stated herein; (4) whether petitioners are entitled to a $22,290 loss as reported on their 1988 Schedule F. We hold they are not; (5) whether petitioners may use special income-averaging provisions pursuant to section 1305. We hold they may not; (6) whether Mr. Powerstein may deduct $65,778 of interest which respondent jeopardy-assessed and collected by levy in 1989. We hold he may not; (7) whether petitioners are liable for additions to tax under section 6653(b) for 1984 through 1988. We hold that Mr. Powerstein is to the extent stated herein, and that Ms. Rosen is not; and (8) whether petitioners are liable for additions to tax under section 6661 for 1985 through 1988. We hold they are.
The parties submitted to the Court numerous stipulations of fact and accompanying exhibits. The stipulated facts and exhibits submitted therewith are incorporated herein by this reference. We find the stipulated facts accordingly. When their respective petitions were filed, petitioners resided in Florida.
Mr. Powerstein was raised in Brooklyn, New York (Brooklyn), and he served in the U.S. Army from May 4, 1958, through May 3,1964. He holds a bachelor of business administration degree in accounting from the City College of New York, and he has completed work towards a master's degree. He was a C.P.A. from June 1967 until at least January 1987.
Between May 1964 and 1976 Mr. Powerstein was an accountant at various accounting firms and businesses. Beginning in 1965 and at all relevant times, he operated a bookkeeping, accounting, and tax return preparation business; namely, Allen D. Powerstein, CPA (accounting firm).
Ms. Rosen was born and raised in Brooklyn. She graduated from high school and did not attend college. Over the years, Ms. Rosen was mostly a homemaker though she occasionally held a job during some of the years in issue.
Petitioners were married in June 1957 and have two children; namely, Madelyn Ballard (Ms. Ballard) and Irene Powerstein (Ms. I. Powerstein). Mr. Powerstein was the household's primary income producer, and he regularly provided financial assistance to Ms. Ballard into her adult years. Throughout the years in issue, petitioners incurred typical household expenses, including amounts for groceries, utilities, and other necessities.Petitioners were married until July 1989, at which time they legally divorced.4
Ms. Ballard and Michael Ballard (Mr. Ballard) (collectively, the Ballards) were married in 1983, and they had at least one child; namely, K.B. Mr. Ballard was raised on a farm in Arkansas. He drank alcohol during the years in issue, and he has been convicted of driving under the influence.
Petitioners lived in Brooklyn until 1972, when they moved their family and household property to Miami, Florida. They paid $6,700 for a parcel of land in Coral Springs, Florida, and subsequently built a home (Coral Springs residence) thereon. They deposited $500 with respect to that residence and secured a $60,472 residential loan (first Glendale mortgage) from Glendale Federal Bank (Glendale Bank) after construction of the residence was completed.5 Petitioners' actual cost of constructing that home exceeded its estimated cost by approximately $11,191. In addition to principal and interest due under the first Glendale mortgage, petitioners also impounded (escrowed) $153 per monthfor real estate taxes. In 1978 petitioners moved in to the Coral Springs residence, and they continued to live there through August 1984.
Petitioners refinanced the first Glendale mortgage in February 1984 with a $100,000 loan (second Glendale mortgage) from Glendale Bank. At the closing of the second Glendale mortgage, petitioners escrowed 5 months of real estate taxes totaling $453. Payments due under the second Glendale mortgage impounded $91 per month for real estate taxes. During 1984 petitioners made nine payments against the second Glendale mortgage totaling $9,324, of which $820 was paid through escrow for real estate taxes. During 1985 petitioners made two payments against the second Glendale mortgage totaling $2,072.
In early-to-mid-1984, petitioners contracted to sell the Coral Springs residence to Dale Underhill (Mr. Underhill) and Mona Underhill (Ms. Underhill) (collectively, the Underhills) for $112,000. The Underhills deposited $8,000 to an interest-bearing account (Underhill account) at Atlantic Federal Savings & Loan (Atlantic Bank) which was jointly held by Mr. Powerstein and Mr. Underhill in trust for Ms. Rosen and Ms. Underhill. That deposit served as a downpayment for the purchase of the Coral Springs residence, and as of December 31, 1984, the Underhill account had earned interest of $259.
The Underhills leased the Coral Springs residence beginning in August 1984 and continued to do so through April 1985, at which time they secured financing to close the sale. Although the Underhills paid rent of $1,000 per month to petitioners, this income was not reported as taxable on petitioners...
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