Wegbreit v. Commissioner of Internal Revenue, 070819 FEDTAX, 7109-13

Docket Nº:7109-13, 15305-13
Opinion Judge:COHEN, JUDGE:
Party Name:SAMUEL WEGBREIT AND ELIZABETH J. WEGBREIT, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent \THE SAMUEL WEGBREIT TRUST FUND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:John E. Rogers, for petitioners. Lauren N. May, David A. Lee, Angela B. Reynolds, Michelle E. Marcove, Naseem Jehan Khan, Thomas F. Harriman, and Tess Deliefde, for respondent.
Case Date:July 08, 2019
Court:United States Tax Court
 
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T.C. Memo. 2019-82

SAMUEL WEGBREIT AND ELIZABETH J. WEGBREIT, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

\THE SAMUEL WEGBREIT TRUST FUND, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 7109-13, 15305-13

United States Tax Court

July 8, 2019

John E. Rogers, for petitioners.

Lauren N. May, David A. Lee, Angela B. Reynolds, Michelle E. Marcove, Naseem Jehan Khan, Thomas F. Harriman, and Tess Deliefde, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, JUDGE:

Respondent determined deficiencies, penalties, and additions to tax in the individual petitioners' Federal income tax as follows:

Samuel and Elizabeth J. Wegbreit (Docket No. 7109-13)1

Year Deficiency Excise tax sec. 4973(a) Penalty sec. 6662 Sec. 6651(a)(1) Sec. 6651(a)(2)
2005 $1, 596, 298.00 --- $319, 260 --- ---
2006 32, 733.00 --- 6, 512 --- ---
2007 525, 381.50 $23, 674.26 188, 660 $5, 327 $5, 919
2008 13, 200.00 24, 173.10 1, 665 5, 439 5, 318
2009 8, 068.00 20, 352.90 1, 614 4, 579 3, 256
1The parties stipulated that petitioners Wegbreit were not liable for sec. 6662A penalties for 2006 and 2007. The Samuel Wegbreit Trust Fund (Docket No. 15305-13) Additions to tax

Year Deficiency Sec. 6654 Sec. 6651(a)(1) Sec. 6651(a)(2)
2005 $1, 589, 646.55 $63, 765.49 $357, 670.47 $397, 411.64
2006 24, 850.05 1, 175.95 5, 591.26 6, 212.51
2007 92, 383.95 4, 204.67 20, 786.39 23, 095.99
2008 13, 241.50 425.57 2, 979.34 2, 913.13
2009 25, 275.75 605.10 5, 687.04 4, 044.12
After the petitions were filed, respondent filed an amended answer asserting that Samuel Wegbreit (S. Wegbreit) and Elizabeth J. Wegbreit (E. Wegbreit) were each liable for penalties for fraud pursuant to section 6663 for 2005 through 2009. The cases were consolidated for trial, briefing, and opinion. After concessions and as a result of the stipulations, the issues remaining for decision are: (1) whether S. Wegbreit and E. Wegbreit had unreported income for 2005 through 2009; (2) whether the assets held by the Samuel Wegbreit Trust Fund (SWTF) are the assets of petitioners Wegbreit for which they were required to take into account the income, deductions, and credits of SWTF in computing their taxable income for 2005 thought 2009; (3) whether S. Wegbreit transferred his interest in Oak Ridge Investments, LLC (Oak Ridge, LLC), to SWTF on or before January 1, 2005; (4) whether gain realized on the sale of S. Wegbreit's Oak Ridge, LLC interest to Pioneer Investment Management USA (Pioneer) was includable in petitioners Wegbreit's gross income for 2005; (5) whether the purported exchange of the Threshold Alliance, Ltd. (Threshold), variable life insurance policy (Threshold policy) for the Acadia Life, Ltd. (Acadia), variable life insurance policy (Acadia policy) qualified for nonrecognition treatment under section 1035; (6) whether petitioners Wegbreit are liable for excise tax on excess individual retirement account (IRA) contributions under section 4973(a) and additions to tax under section 6651(a)(1) and (2) for 2007 through 2009; and (7) whether petitioners Wegbreit are each liable for fraud penalties under section 6663 for 2005 through 2009, or in the alternative accuracy-related penalties under section 6662(a). Unless otherwise indicated all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. FINDINGS OF FACT Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioners Wegbreit resided in Illinois when their petitions were filed. SWTF was a Colorado trust when its petition was filed. S. Wegbreit was born in 1957, and he graduated from Brown University with a degree in applied mathematics in 1979. At all material times S. Wegbreit worked in the financial industry. E. Wegbreit was born in 1963. She graduated from the College of St. Catherine in 1985 and received a master of science degree in maternal child health in 1995 from the University of Illinois at Chicago. Petitioners Wegbreit were married in 1994, they remained married to each other at all material times, and they filed a joint return for each of the years in issue. They have two children, a son born in 1994 and a daughter born in 1996. The Oak Ridge Companies S. Wegbreit started Oak Ridge Investments, Inc. (Oak Ridge, Inc.), together with David Klaskin in 1989 as a retail broker-dealer. From the beginning, S. Wegbreit ran all of the compliance, operations, and finance functions for Oak Ridge, Inc., and Klaskin focused on marketing and the investment side of the business. Oak Ridge, Inc. eventually added a registered investment adviser service to its business. On March 3, 1997, S. Wegbreit and Klaskin formed Oak Ridge, LLC to shield...

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