Sandoval v. Commissioner
| Decision Date | 27 June 2000 |
| Docket Number | Docket No. 21220-96. |
| Citation | 79 T.C.M. 2163 |
| Parties | Thomas C. Sandoval, Jr. and Bobbie J. Sandoval v. Commissioner. |
| Court | U.S. Tax Court |
Thomas C. Sandoval, Jr., pro se. Elizabeth A. Owen, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined deficiencies in petitioners' Federal income tax and additions to tax and penalties as follows:
Additions to tax and penalties
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Year Deficiency Sec. 6651(a)(1) Sec. 6661(a) Sec. 6662(a)
1985 .......................... $27,673 $ 3,362 $6,918 --
1987 .......................... 21,865 2,722 5,466 --
1989 .......................... 10,017 -- -- $ 2,003
1990 .......................... 50,643 10,910 -- 10,129
Respondent filed an amended answer asserting that petitioners' tax liability is as follows:1
Additions to tax and penalties
----------------------------------------------------------
Year Deficiency Sec. 6651(a)(1) Sec. 6661(a) Sec. 6662(a)
1985 .......................... $27,642 $ 3,889 $3,888 --
1987 .......................... 21,865 2,935 2,935 --
1989 .......................... 10,017 2,420 -- $ 1,936
1990 .......................... 50,643 10,911 -- 10,129
After concessions, the issues for decision are:
1. Whether petitioners have a basis of $233,408 in additions to a building. We hold that their basis in the additions is $20,000.
2. Whether petitioners have a basis of $130,000 (or any other amount) in real property for two outdoor advertising signs on the property. We hold that they do not.
3. Whether the Babcock Road and Warfield Drive properties qualify under section 1033 as replacement property for property sold under threat of condemnation. We hold that they do not.
4. Whether petitioner placed certain vehicles in service when he bought them for his business, as respondent contends, or when he began to use them in his business, as petitioners contend. We hold that petitioner placed the vehicles in service when he bought them for his business.
5. Whether petitioners may deduct depreciation for their business property in an amount greater than respondent allowed. We hold that they may not.
6. Whether petitioners may claim net operating loss carrybacks or carryforwards or investment tax credit carryforwards for the years in issue. We hold that they may not.
7. Whether petitioners are liable for an addition to tax under section 6651 for failure to timely file their Federal income tax returns for the years in issue. We hold that they are.
8. Whether petitioners are liable for additions to tax for substantial understatement of income tax under section 6661 for 1985 and 1987 and for accuracy-related penalties for substantial understatement of tax under section 6662(b)(2) and (d) for 1989 and 1990. We hold that they are for the years they substantially underpaid tax.
References to petitioner are to Thomas C. Sandoval, Jr. Section references are to the Internal Revenue Code in effect during the years in issue. Unless otherwise noted, Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found.
Petitioners lived in San Antonio, Texas, when they filed their petition.
During the years in issue, petitioner was sole proprietor of Allied Electric and Air Conditioning Co. (Allied Electric) located on Hoefgen Avenue (Hoefgen Avenue property) in San Antonio. There was a billboard and a commercial sign (the two outdoor advertising signs) on the Hoefgen Avenue property.
Petitioner bought the following vehicles for Allied Electric because he thought he needed them for contracts on which he had bid, but which he did not win:
Vehicle Date acquired
1973 Ford Digger October 1982
1972 Ford Bucket truck February 1983
1977 GMC Bobtail April 1983
1977 GMC Bobtail April 1983
1985 Ram Charger October 1984
He maintained them, but he did not register or insure them until he began to use them for his business in 1985.
Between January 1, 1982, and December 31, 1984, petitioner added warehouse storage space and an office addition to the second story of the Hoefgen Avenue property. Richard Zamora (Zamora) drafted plans for the storage space addition in November 1981 and plans for the office addition in March 1983 and oversaw construction of both. Petitioner signed the building permit for the office addition which stated that the addition was estimated to cost $10,400.
Petitioners' county property tax statement states that improvements (i.e., everything but the land) at the Hoefgen Avenue property were worth $112,020 in 1984 and $158,800 in 1985 and 1986.
The City of San Antonio threatened to condemn the Hoefgen Avenue property in the summer of 1990. Petitioner hired John Neal (Neal), a real estate appraiser, to appraise the improvements on that property. Neal estimated that the replacement cost of those improvements as of June 8, 1990, was as follows:
Structures Replacement cost
Office building ............................................. $193,011
Transit warehouse ........................................... 77,012
Additions (e.g., sheds, fans & openers, canopy area
stairs, fencing, etc.) ..................................... 36,499
________
Total ................................................... 306,522
The City of San Antonio bought the Hoefgen Avenue property under threat of condemnation for $425,000 on September 17, 1990. Petitioner received net proceeds of $371,486 from the sale (the condemnation proceeds). Petitioner elected to defer the gain he realized from the condemnation sale by buying replacement property under section 1033.
Petitioner bought real property on Jones Maltsberger Road (Jones Maltsberger Road property) in San Antonio on September 26, 1990, and 3.164 acres of land in Bexar County on October 7, 1991. Respondent concedes that these properties qualify under section 1033 as replacement properties for the Hoefgen Avenue property.
Gary A. Burnett (Burnett) and petitioner each paid a total of $84,107 to buy 1.329 acres of real property on Babcock Road (Babcock Road property) in San Antonio. They made those payments on October 30 and December 2 and 3, 1991. On December 4, 1991, petitioner and Burnett agreed in writing (Babcock Road property agreement) to create a joint venture called "TGR Partnership a Texas general partnership" (TGR I), with a principal place of business at the Jones Maltsberger Road property. Petitioner and Burnett signed Exhibit A to the Babcock Road property agreement which states: "This partnership is formed for the purpose of purchasing the property as described in Exhibit `B'". Exhibit B describes the Babcock Road property. The Babcock Road property agreement provided: (a) "Joint venture I" began on December 3, 1991; (b) its purpose was short-term investment (6 to 12 months) in the Babcock Road property; (c) all allocations would be 50 percent each to petitioner and Burnett; (d) real property was to be owned in the name of the joint venture or any joint venturer as nominee or trustee of the joint venture; (e) each joint venturer waived the right to partition joint venture property; (f) the joint venturers had equal right to control and manage the Babcock Road property; (g) the joint venturers' rights to sell, assign, transfer, encumber, or otherwise dispose of interests in the Babcock Road property were restricted; and (h) each of the joint venturers had the option to buy the other's interest upon the other's death, adjudication of the other's incompetency, the other's bankruptcy, or gift of part or all of the other's interest in the property.
The Babcock Road property settlement statement dated December 5, 1991, names TGR I as the borrower for the property.
On March 20, 1992, petitioner registered TGR I as his assumed name. Petitioner did not include Burnett's name on the assumed name certificate. A City of San Antonio statement of property taxes for 1992 lists the TGR I as the owner of record of the Babcock Road property.
On December 15, 1992, petitioner and Burnett sold the Babcock Road property for $318,000 plus $429 in taxes. The settlement statement listed TGR I as the seller. Petitioner and Burnett each signed the settlement statement as a partner of TGR I. The settlement company issued two checks for $143,250 each payable to TGR I. Petitioner and Burnett each endorsed one check payable to the other.
On May 14, 1993, petitioner and Burnett agreed to form a joint venture under the name "TGR Partnership a Texas general partnership" (TGR II) to buy real property to hold for 3 to 5 years to generate rental income.
On May 17, 1993, petitioner and Burnett signed a written agreement (Warfield Drive property agreement), and bought property on Warfield Drive (Warfield Drive property) in San Antonio. On May 17, 1993, petitioner and Burnett each paid about $123,000 for a 50-percent interest in TGR II. Petitioner and Burnett signed Exhibit A to the...
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