Rollins v. Commissioner

• Decision Date: 30 December 1993
• Docket Number: Docket No. 22950-81.,Docket No. 11119-77.,Docket No. 13210-80.,Docket No. 11864-77.,Docket No. 13211-80.,Docket No. 23449-81.,Docket No. 13848-79.,Docket No. 13209-80.,Docket No. 7971-82.,Docket No. 1518-77.,Docket No. 8200-77.,Docket No. 7673-76.,Docket No. 13212-80.
• Citation: 66 T.C.M. 1869
• Parties: John W. Rollins and Linda S. Prickett (Formerly Linda S. Rollins), et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner.
• Court: U.S. Tax Court

66 T.C.M. 1869

T.C. Memo. 1993-643

John W. Rollins and Linda S. Prickett (Formerly Linda S. Rollins), et al.¹ v. Commissioner.

Docket No. 7673-76.

Docket No. 1518-77.

Docket No. 8200-77.

Docket No. 11119-77.

Docket No. 11864-77.

Docket No. 13848-79.

Docket No. 13209-80.

Docket No. 13210-80.

Docket No. 13211-80.

Docket No. 13212-80.

Docket No. 22950-81.

Docket No. 23449-81.

Docket No. 7971-82.

United States Tax Court.

Filed December 30, 1993.

Johannes R. Krahmer, Thomas Reed Hunt, Jr., Edmond D. Johnson, and John S. McDaniel, 1201 N. Market St., P.O. Box 1347, Wilmington, Del., for the petitioners. Janet A. Engel and Joellyn R. Cattell, for the respondent.

                                              TABLE OF CONTENTS
                MEMORANDUM FINDINGS OF FACT AND OPINION .................................   1871
                OPINION OF THE SPECIAL TRIAL JUDGE ......................................   1871
                FINDINGS OF FACT ........................................................   1873
                A. Introduction .........................................................   1873
                     1. Petitioner ......................................................   1873
                     2. Rollins Leasing Corp ............................................   1873
                     3. Rollins, Inc. ...................................................   1873
                     4. Rollins Jamaica, Ltd ............................................   1873
                     5. Dover Downs, Inc  ...............................................   1873
                     6. Jefferic Enterprises, Inc. ......................................   1874
                     7. John W. Rollins & Associates ....................................   1874
                     8. Rollins Brothers Partnership ....................................   1874
                B. Stock Sales ..........................................................   1874
                     1. Controlled Corporation Financing: ...............................   1874
                        a. Rollins Jamaica.—i. Start Up Costs ..........................   1874
                           ii. Bank Borrowing ...........................................   1874
                           iii. Petitioner's Loans ......................................   1875
                        b. Dover Downs.—i. Start Up Costs ..............................   1875
                           ii. Bank Borrowing ...........................................   1875
                           iii. Petitioner's Loss .......................................   1875
                        c. Jefferic Enterprises .........................................   1875
                     2. Economic Downturn: ..............................................   1875
                        a. U.S. Economy .................................................   1875
                        b. Financial Overruns ...........................................   1875
                        c. Debt Servicing Problems ......................................   1876
                        d. The Debt Workout .............................................   1876
                     3. Mechanics of Stock Transfers: ...................................   1877
                        a. Telephone Call ...............................................   1877
                        b. Follow-up Procedures .........................................   1877
                        c. Timing of Sales ..............................................   1878
                        d. Title and Authorization ......................................   1878
                           i.  Early years ..............................................   1878
                                (a) Petitioner's Authority ..............................   1878
                

                                (b) Corporate Approval ..................................   1879
                                (c) Return of Stock After Contribution ..................   1879
                           ii. Later Years ..............................................   1880
                           iii. Securities Exchange Commission Form Reporting ...........   1880
                C. Application of Proceeds ..............................................   1881
                     1. Rollins Jamaica .................................................   1881
                        a. Stock Sales Summary ..........................................   1881
                        b. Petitioner Loan Payable Account ..............................   1881
                        c. Rollins Jamaica's Bank Loan Payable Accounts .................   1882
                           i. Williams & Glyn's Bank ....................................   1882
                           ii. National Shawmut Bank ....................................   1883
                           iii. National  Bank of Washington ............................   1883
                           iv. Continental Bank of Trust ................................   1883
                     2. Dover Downs: ....................................................   1884
                        a. 1970-72 ......................................................   1884
                        b. 1975 .........................................................   1884
                     3. Jefferic Enterprises ............................................   1885
                D. Rollins Brothers Partnership .........................................   1885
                ULTIMATE FINDINGS OF FACT ...............................................   1886
                OPINION .................................................................   1886
                A. Law ..................................................................   1886
                B. Analysis .............................................................   1892
                     1. The Early Years 1970-73 .........................................   1892
                     2. The Later Years 1975-78: ........................................   1894
                        a. Rollins Jamaica and Dover Downs ..............................   1894
                        b. Jefferic Enterprises .........................................   1895
                C. Rollins Brothers Partnership .........................................   1896
                

Memorandum Findings of Fact and Opinion

DAWSON, Judge:

These consolidated cases were assigned to Special Trial Judge Francis J. Cantrel pursuant to section 7443A(b)(4) and Rules 180, 181, and 183.² We agree with and adopt his opinion which is set forth below.

Opinion of the Special Trial Judge

CANTREL, Special Trial Judge:

In the notices of deficiency, respondent determined deficiencies in and additions to Federal income taxes as follows:

                John W. Rollins and Linda S. Prickett (Formerly Linda S. Rollins)
                                                       Date of
                Docket                                 Notice of    Taxable                    Addition to Tax
                Number                                 Deficiency     Year    Income Tax        Sec. 6653(b)
                7673-76 ............................    6/30/76       1967    $   410,229        $  205,114
                                                                      1968        574,812           287,406
                                                                      1969      1,137,991           568,995
                                                                      1970        709,935           354,967
                                                                      1971      1,040,174           520,087
                1518-77 ............................    1/14/77       1972      2,479,159         1,239,580
                11864-77 ...........................     9/9/77       1973        386,597           193,298
                13848-79 ...........................    8/13/79       1974        246,777           123,388
                13209-80 ...........................    6/13/80       1975      1,341,829           -0-
                                                      John W. Rollins
                                                       Date of
                Docket                                 Notice of    Taxable                    Addition to Tax
                Number                                 Deficiency     Year    Income Tax        Sec. 6653(b)
                13211-80 ...........................    6/13/80       1976      2,068,909           -0-
                23449-81 ...........................    7/30/81       1977        584,897.80        -0-
                                                                      1978        359,423           -0-
                

                Rollins Jamaica, Ltd
                                                       Date of
                Docket                                 Notice of                               Addition to Tax
                Number                                 Deficiency    FYE      Income Tax        Sec. 6653(b)
                8200-77 ............................    4/28/77     9/30/72       291,542           -0-
                11119-77 ...........................    8/22/77     9/30/73       242,135           -0-
                13212-80 ...........................    6/13/80     9/30/76     1.204,130           -0-
                                                                    9/30/77     1,333,142           -0-
                7971-82 ............................    1/29/82     9/30/78       225,007           -0-
                                                 Jefferic Enterprises, Inc
                                                       Date of
                Docket                                 Notice of    Taxable                    Addition to Tax
                Number                                 Deficiency     Year    Income Tax         Sec. 6653(b)
                13210-80 ...........................    6/13/80       1975          1,544           -0-
                                                                      1976          2,112           -0-
                22950-81 ...........................    7/30/81       1977         96,047           -0-
                

Respondent, in the Amendment to Answer filed at docket No. 7673-76, raised sections 269³ and 482 and asserted an increased deficiency of $7,005 and an addition to tax under section 6653(b) of $3,503 for petitioners' 1970 taxable year. Respondent bears the burden of proof with respect to the new matter raised for the taxable years 1970 and 1971, and the increased deficiency for 1970. Rule 142(a); Achiro v. Commissioner [Dec. 38,351], 77 T.C. 881, 891 (1981).

By Amendment to Answer filed at docket No. 1518-77, respondent raised section 482 for petitioners' taxable year 1972 for which she bears the burden of proof for the reasons stated by the Court at trial.

By Amendment to Answer filed at docket No. 8200-77, respondent asserted an increased deficiency for the fiscal year ended September 30, 1972, in the amount of $313, the burden of proof of which is upon respondent.

Respondent, in the Amendment to Answer filed at docket No. 13209-80, refers to section 482 which was raised in the notice of deficiency. Consequently,...