Stafford v. Commissioner, Docket No. 13064-90.
| Decision Date | 02 November 1992 |
| Docket Number | Docket No. 13064-90. |
| Citation | 64 T.C.M. 1199 |
| Parties | Clyde E. Stafford and Carolyn J. Stafford v. Commissioner.<SMALL><SUP>*</SUP></SMALL> |
| Court | U.S. Tax Court |
Clyde E. Stafford, pro se. Elizabeth G. Beck, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in and additions to petitioners' Federal income taxes:
Additions to Tax
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Year Deficiency Sec. 6653(b)(1)1 Sec. 6653(b)(2) Sec. 6661
1984 ......................... $71,331 $35,666 50 percent $17,833
1985 ......................... 61,515 30,758 of the interest 15,379
1986 ......................... 25,420 19,065 due on the 6,355
deficiency
1 For 1986, the additions to tax for fraud are codified under sec. 6653(b)(1)(A) and (B)
In the alternative to the 1984 and 1985 additions to tax under section 6653(b)(1) and (2),1 respondent determined additions to tax under section 6653(a)(1) in the respective amounts of $3,566.55 and $3,075.75, and under section 6653(a)(2) in the respective amounts of 50 percent of the interest due on $71,331 and $61,515. In the alternative to the 1986 additions to tax under section 6653(b)(1)(A) and (B), respondent determined a $1,271 addition to tax under section 6653(a)(1)(A) and an addition to tax under section 6653(a)(1)(B) in the amount of 50 percent of the interest due on $25,420.
Respondent has conceded the additions to tax under section 6653(b)(1) and (2) for 1984 and 1985 and section 6653(b)(1)(A) and (B) for 1986. In respondent's answer to petitioners' amendment to petition, respondent inadvertently asserted additions to tax under section 6651(a)(1) for 1984, 1985, and 1986. Hence respondent has conceded these section 6651(a)(1) additions to tax. In addition, respondent has conceded that the determination with respect to Federal income taxes and additions to tax for 1984 was untimely. The period in which an assessment for that year could have been made pursuant to section 6501 expired prior to March 30, 1990, the date respondent mailed the statutory notice of deficiency to petitioners in this case. Thus, there is no deficiency or additions to tax due from petitioners for 1984 and that year is no longer in issue.
Consequently, the issues remaining for decision are: (1) Whether respondent is barred by the statute of limitations from assessing and collecting the Federal income tax and additions for petitioners' 1985 tax year;2 (2) whether petitioners understated the Schedule C gross receipts from their gasoline service station businesses for 1985 and 1986 in the respective amounts of $231,620 and $201,251.66 which in turn increased their gross income for those years; (3) whether petitioners are entitled to additional Schedule C expenses, including depreciation and cost of goods sold, for the operation of their gasoline service station businesses in 1985 and 1986 in the respective amounts of $171,244 and $127,665; (4) whether petitioners are entitled to claimed Schedule E expenses with respect to two rental properties for 1985 and 1986 in the respective amounts of $11,937 and $6,492; (5) whether petitioners are entitled to claimed gambling losses of $9,870 for 1985; (6) whether petitioners received unreported gambling income of $49,140 in 1986; (7) whether petitioners are entitled to Schedule W married couple deductions for 1985 and 1986 in the respective amounts of $1,336 and $675; (8) whether petitioners are entitled to investment credits of $17,570 for 1985; (9) whether petitioners are liable for increased self-employment taxes pursuant to section 1401 for 1985 and 1986 in the respective amounts of $4,563 and $3,816; (10) whether petitioners are liable for the additions to tax for negligence or intentional disregard of rules or regulations pursuant to section 6653(a)(1) and (2) for 1985, and section 6653(a)(1)(A) and (B) for 1986; and (11) whether petitioners are liable for the additions to tax for substantial understatements of tax pursuant to section 6661 for 1985 and 1986.
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
Clyde E. and Carolyn J. Stafford (hereinafter collectively referred to as petitioners) resided in Dallas, Texas, at the time they filed their petition. They timely filed joint Federal income tax returns for 1985 and 1986. On March 30, 1990, respondent mailed a statutory notice of deficiency to petitioners at their last known address. The notice determined deficiencies for 1984, 1985, and 1986.
Clyde E. Stafford (hereinafter referred to in the singular as petitioner) is a college graduate who majored in mathematics. For several years prior to operating his own gasoline service station businesses (hereinafter gasoline station businesses or gasoline service station businesses) in 1972, petitioner worked as a bookkeeper for Exxon Co., U.S.A. (hereinafter Exxon). He has always prepared petitioners' joint Federal income tax returns.
Carolyn J. Stafford was employed by American Airlines, Inc., during the years in issue. She earned wages of $14,295.80 and $17,715.03 for 1985 and 1986, respectively, from American Airlines, Inc.
On petitioners' 1985 and 1986 Federal income tax returns, petitioner listed his occupation as "service station". In fact, he operated two gasoline service station businesses during this period: Stafford's Service Station in Dallas, Texas (hereinafter Dallas Station), and Stafford Exxon, in Irving, Texas (hereinafter Irving Station). Petitioners attached Schedules C, Profit or (Loss) From Business or Profession (Sole Proprietorship), to their 1985 and 1986 returns for each of these businesses.
During the years in issue, petitioner used the cash method of accounting for Federal income tax purposes and the cost accounting method to value closing inventory at the gasoline service stations. He accepted both cash and credit card payments for sales and services at the stations. Petitioners earned income from gasoline sales, nongasoline products, automotive repairs, State inspections, and vending machine sales. Petitioner did not have cash registers at the gasoline stations. He kept the cash payments that he received in cash boxes at the stations.
Petitioner maintained incomplete records of his gasoline service stations' sales and expenses for 1985 and 1986. For example, he did not keep any records of gasoline cash sales or of State motor vehicle inspections. The record in this case is devoid of any testimony or exhibits, other than petitioners' Federal income tax returns, with respect to a majority of the disputed Schedule C expenses for both 1985 and 1986. In the course of investigating petitioners' returns, respondent obtained various third-party records, such as gas distributor invoices, in an attempt to fill this "paper gap".
Petitioner has operated the Irving Station since 1977. The Irving Station sold Exxon products during the years in issue. It was open for business from 7 a.m. through 8 p.m., every day of the week.
The Irving Station purchased a total of 701,371 gallons of gasoline in 1985 at a total cost of $728,976.39. These purchases included extra unleaded, unleaded, and regular fuel. The cost of the Irving Station's opening and ending inventories for 1985 was the same: $10,726.
In addition to the gasoline sales, the Irving Station also received income during 1985 from sales of automotive accessories such as accessories-hard parts, antifreeze, motor oils, batteries, tires, and automotive greases. Petitioner purchased these products from Exxon at a total cost of $13,190.36 ($5,100.44 for oil and $8,089.92 for the remaining nongasoline products). Petitioner marked up motor oils by 50 percent. He marked up other nongasoline items by 20 percent.
Petitioner also performed State of Texas motor vehicle inspections at the Irving Station. He paid a total of $1,127 for State inspection stickers during 1985. The price per inspection sticker was $2.75. Petitioner charged $7.50 to inspect cars that ran on leaded fuel and $10.50 for cars that ran on unleaded fuel.
Petitioner kept an incomplete State inspection log that shows inspections beginning in January 1985, and running approximately 300 consecutive days thereafter. The log shows total income of $2,579.08 from State motor vehicle inspections for 1985.
Petitioners also received income from specialty motor vehicle repairs at the Irving Station. Petitioner did not, however, maintain any records of his income from these repairs. During 1985, he paid $11,000 for automotive repair parts. At trial, he estimated that he had an average daily income of between $40 and $50 from these repairs in 1985.
The parties agree that the Irving Station had the following allowable business expenses for 1985:
Expense Amount
Insurance ........................ $ 2,016
Interest ......................... 2,881
Rent ............................. 18,960
Wages ............................ 9,073
Auto repair parts ................ 11,000
State inspection stickers ........ 1,127
Utilities and telephone1 ......... 3,476
Taxes ............................ 746
Supplies ......................... 1,401
Exxon credit card ................ 8,843
_______
Total ............................ $59,523
1 Petitioners claimed a total of $3,880 in business
expenses for utilities and telephone for 1985. This amount
included charges for both business and personal use
Similarly, for 1986, petitioners claimed a total $6,768
business
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