Scallen v. Commissioner
| Decision Date | 24 August 1987 |
| Docket Number | Docket No. 6913-85. |
| Citation | 1987 TC Memo 412,54 TCM(CCH) 177 |
| Parties | Stephen B. Scallen and Chacke Y. Scallen, Commissioner. |
| Court | U.S. Tax Court |
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James W. Littlefield, for the petitioners, 1221 Nicollet Mall, Minneapolis, MN. Genelle E. Forsberg and Gordon Gidlund, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioners' Federal income tax as follows:
Additions to Tax
Sec. Sec. Sec. Sec
Year Deficiency 6651(a) 6653(a)(1) 6653(a)(2) 6653(b)1
1976 .............................$ 17,716 - - - $ 8,858
1977 ............................. 391,204 - - - 195,602
1978 ............................. 6,607 - - - 3,304
1979 ............................. 277,140 $41,571 $13,875 - -
1980 ............................. 97,922 - 4,896 - -
1981 ............................. 442,840 - 22,142 * -
****
* 50 percent of the interest due on $442,840
In his Answer, respondent further claims the following additions to tax:
Additions to Tax
Year Sec. 6653(b) Sec. 6653(b)(2)
1979 ................ $138,570 -
1980 ................ 48,961 -
1981 ................ 221,420 *
* 50 percent of the interest due on $442,840
Respondent asserts the additions to tax for fraud only against Stephen B. Scallen (petitioner), not petitioner's wife, Chacke Y. Scallen. If the Court determines that petitioner owes no additions to tax for fraud under section 6653(b), respondent, in his Answer, requests the Court (1) to make a determination, pursuant to section 6214(a), of additions to tax under section 6653(a) for 1976, 1977, and 1978 and (2) to sustain the additions to tax claimed by respondent in his notice of deficiency for 1979, 1980, and 1981.
Although respondent identified 44 issues in his trial memorandum and in his opening brief, petitioners have addressed only 23 of them. Because petitioners failed to articulate arguments on the other issues, all of which were essentially factual issues on which they bear the burden of proof under Rule 142(a), we conclude that they have abandoned and thereby conceded those issues. See Calcutt v. Commissioner Dec. 42,026, 84 T.C. 716 (1985).2 Respondent's determinations as to those issues, unless otherwise modified by the stipulation of the parties, are therefore sustained.
Our findings of fact and opinion have been organized so that related issues may be considered together. A table in the attached Appendix will assist the parties to cross-reference the issues herein to the issues laid out in their respective briefs. The issues remaining for decision are as follows:
(1) Whether petitioner's gain realized on the retirement of the Eberhardt Company note in 1977 is capital gain or ordinary income.
(2) Whether petitioner realized ordinary income in 1977 of $70,577 representing John C. Parrott, M.D.'s (Dr. Parrott), distributive share on liquidation of Franklin Park Partnership's assets.
(3) Whether petitioner correctly reported gain in 1979 on the sale of the Mark Twain Hotel/Brittany Apartments (Brittany).
(4) The amount of gain realized on the sale of Brittany to Charter Jet in 1980.
(5) Whether petitioner is entitled to a capital loss in 1981 attributable to the sale of Brittany to Charter Jet in 1980.
(6) Whether petitioner is entitled to deduct $18,503 in 1980 as repairs expense relating to certain property at 1313 Como, S.E. (1313 Como).
(7) Whether petitioner's 1981 transfer of 1313 Como to Interfund Services, Inc. (Interfund, Inc.), was a sale or a contribution to capital.
(8) Whether petitioner had income in 1981 when Interfund, Inc., transferred the remaining condominium units to Campus Realty Corporation.
(9) Whether petitioner is entitled to an interest deduction in 1979 of $46,783 attributable to the settlement of a lawsuit by Midway National Bank of St. Paul.
(10) Whether petitioner is entitled to deduct $30,000 in 1980 for a lawsuit settlement involving the Campus Realty Company No. 12 partnership.
(11) Whether petitioner is entitled to deduct $58,500 in 1980 for a lawsuit settlement involving Frank Klodt & Sons, Inc.
(12) Whether petitioner is entitled to deduct legal fees in 1979.
(13) Whether petitioner is entitled to deduct legal fees in 1980.
(14) Whether petitioner is entitled to deduct $5,000 for "Legal and professional services" and $22,000 for "Promotion" for amounts allegedly paid to Gerald R. Hansen (Hansen) in 1978.
(15) Whether petitioner is entitled to capitalize the "Consulting Fees" of $37,198 allegedly paid to Hansen in 1978.
(16) Whether petitioner is entitled to deduct $25,000 for "Commissions" allegedly paid to Hansen in 1979.
(17) Whether petitioner is entitled to deduct $25,000 for "Consulting Fees" allegedly paid to Hansen in 1980.
(18) Whether petitioner is entitled to deduct $10,000 for "Commissions" allegedly paid to Hansen in 1980.
(19) Whether petitioner had income in 1980 from the forgiveness of liabilities.
(20) Whether petitioner had income in 1981 from the forgiveness of liabilities.
(21) Whether petitioner had additional income in 1981 from teaching at the University of Lyon in France.
(22) Whether petitioner is entitled to deduct losses in 1979 and 1980 attributable to Sunnyside Development Corporation, a small business corporation.
(23) Whether petitioner is liable for additions to tax for fraud under section 6653(b) in each of the years 1976, 1977, 1978, 1979, 1980, and 1981.
(24) If we do not find fraud in each year in issue, whether petitioner is liable for additions to tax under sections 6651(a) and 6653(a).
Petitioners Stephen B. Scallen and Chacke Y. Scallen, husband and wife, resided in Minneapolis, Minnesota, when they filed their petition. They filed joint Federal income tax returns for each of the years 1971 through 1983. On each return, petitioners reported a tax liability of zero.
Petitioner graduated from the University of Minnesota Law School in 1959, ranking third or fourth in his class of about 70. He was president of the law review and a member of the Order of the Coif. From 1959 to 1961, petitioner was an associate in a large, prestigious law firm based in Washington, D.C., where he concentrated in the field of Federal income taxation.
From 1961 until 1965, petitioner served as assistant dean of the University of Minnesota law school. From 1961 through the time of trial, petitioner was a professor at the University of Minnesota law school, teaching courses in Federal income taxation, business planning, securities regulations, real estate planning, international law, and international taxation.
From 1976 through 1983, petitioner attended various continuing legal education courses, including, among other things, Usury Law and Modern Business Transactions, Tax Shelters, Housing Law, Estate Planning, International Tax Problems, and Purchase and Broker Agreements. In 1980, petitioner taught two continuing legal education courses: "Real Estate Planning: Purchase Agreements" and "Real Estate Planning: Tax Free Exchanges."
On a leave of absence from the University of Minnesota during 1965 and 1966, petitioner was a Graduate Fellow at Harvard Law School where he researched and studied Federal taxation. Petitioner wrote two articles for the Minnesota Law Review entitled "Federal Income Taxation of Professional Associates and Corporations" (in March 1965) and "Deductibility of Anti-Trust Treble Damage Payments" (in June 1968) and one article for the 1970 Institute on Estate Planning entitled "The Professional Association."
Beginning in 1966, petitioner engaged in the real estate business in Minneapolis, Minnesota, in addition to teaching at the University of Minnesota. His activities included the buying and selling of real estate, the development of apartment complexes and condominiums, syndication and management of real estate partnerships, the arranging of real estate financing, and the management of real estate rental properties. Between 1974 and 1978, petitioner owned, controlled, or held an interest in approximately 19 partnerships, 6 corporations, and 11 ventures classified as sole proprietorships, all of which were related to real estate ventures or properties. Among the partnerships were the following:
Petitioner's Percentage
Name of Ownership
50%
Monroe House Partnership................................................. (as of 1/1/76)
60%
Franklin Park Partnership................................................. (as of 1/1/76)
Campus Development, Ltd. Partnership...................................... 40%
Cedar Courts, Ltd. Partnership ............................................. -*
Campus Realty Company No. 4 Partnership (CR-4)............................. -*
Campus Realty Company No. 5 Partnership (CR-5)............................. -*
Campus Realty Company No. 12 Partnership (CR-12)........................... -*
* In June 1974, petitioner acquired the assets of CR-4 and the interests of the other partners by assuming all of the
partnership liabilities. In December 1974, petitioner acquired the assets of Cedar Courts, Ltd. Partnership...To continue reading
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