Wicker v. Commissioner
| Decision Date | 15 September 1993 |
| Docket Number | Docket No. 27297-87.,Docket No. 8561-89. |
| Citation | 66 T.C.M. 757 |
| Parties | Robert G. Wicker v. Commissioner. |
| Court | U.S. Tax Court |
Robert G. Wicker, pro se. Michael A. Urbanos, for the respondent.
Memorandum Findings of Fact and Opinion
This case was submitted to the Court pursuant to Rule 122.1 Respondent determined the following deficiencies in, and additions to, petitioner's Federal income tax:
Additions to Tax
Section Section Section Section
Year Deficiency 6653(b) 6653(b)(1) 6653(b)(2) 6661
1978 ............................. $10,233 $ 5,117 $ -- -- $ --
1979 ............................. 17,437 8,719 -- -- --
1980 ............................. 12,447 6,224 -- -- --
1981 ............................. 23,801 11,901 -- -- --
1982 ............................. 6,382 -- 3,191 * 1,596
1983 ............................. 7,664 -- 3,832 * 1,916
* 50 percent of the interest due on the portion of the underpayment attributable to fraud. Respondent determined
that the entire underpayment for each of the years 1982 and 1983 was due to fraud
The issues for decision are:
1. Is petitioner entitled to deduct certain expenses in excess of the amounts allowed by respondent for the years 1981, 1982, and 1983? We hold that he is not.
2. Did petitioner recognize either a gain or a loss on a foreclosure that occurred in 1978? We hold that he did not.
3. Is petitioner entitled to deduct a loss claimed with respect to an alleged cancellation of a contract for deed in 1982? We hold that he is not.
4. Is petitioner entitled to carry forward alleged net operating losses to any of the years at issue? We hold that he is not.
5. Is petitioner liable for the additions to tax for fraud for each of the years at issue? We hold that he is liable for each such year, except 1982 and 1983.
6. Is petitioner liable for the addition to tax for substantial understatement of income tax under section 6661 for each of the years 1982 and 1983? We hold that he is not.
Virtually all of the facts have been stipulated and are so found. Robert G. Wicker (petitioner) resided in Duluth, Minnesota, at the time the petition was filed in docket No. 27297-87, and in Oakdale, Minnesota, at the time the petition was filed in docket No. 8561-89.
Petitioner attended the University of Minnesota from 1948 to 1950 as a science, literature, and arts student and from 1950 to 1955 as a law student. Petitioner earned a substantial number of credits in business and law-related courses.
Petitioner was president and director of Franklin Auto Body Company, Inc. (FAB), Wicker Enterprises, Inc. (WE), C.A.M. Productions, and Cherokee-Linden Holding Company, Inc., from January 1, 1978, to June 20, 1981.
Sometime prior to the years at issue, Florence Wicker, petitioner's mother, owned 48 of the outstanding shares of FAB stock and all of the outstanding shares of WE stock. Charles Pratt owned one share of FAB stock, and WE owned the remaining shares of FAB stock.
In 1972, petitioner paid Florence Wicker (1) $100 for an option to buy her 48 shares of FAB stock for $48,000 and (2) $100 for an option to buy her 100 shares of WE stock for $55,000.
Florence Wicker died on April 5, 1975. A lawsuit arose relating to Florence Wicker's estate (estate), which was settled in September 1975 (settlement). Under the terms of the settlement, petitioner waived his interest in the estate and assigned to FAB his stock options to purchase from the estate certain stock in FAB and WE. FAB exercised those stock options and, as required by the settlement, paid the estate the agreed upon purchase price of $100,025.50 and paid the attorneys representing John Wicker and Franklin Wicker (Franklin) the agreed upon fee of $25,000.
In order to make the payments for which it was obligated under the settlement, FAB borrowed $195,000 (the loan) from Citizens Bank of St. Louis Park, Minnesota (Citizens) and entered into a mortgage loan agreement (mortgage agreement) with Citizens on February 3, 1976.2 Pursuant to the mortgage agreement, the following properties were used as collateral for the loan from Citizens:
886 Jefferson
195 University Avenue
97 N. Snelling
295 University Avenue
297 University Avenue
133 ½ A Wilkin Farm
1419 Linden
Wagon Wheel Trail3
980 Cherokee
299 and 301 University Avenue
FAB had purchased the above-described properties except 980 Cherokee at various times between 1930 and 1969 from unrelated parties.
The loan from Citizens was due on February 3, 1977, but was extended. In April 1978, Citizens foreclosed (1978 foreclosure) on the following mortgaged properties4 which had the following bases on the date of foreclosure:
Property Basis
886 Jefferson ............................................................. $ 4,794.86
97 N. Snelling ............................................................ 2,553.94
295 University Avenue ..................................................... 2,598.03
297 University Avenue .................................................... 3,889.15
Wilkin Farm ............................................................... 19,102.44
1419 W. Linden ............................................................ 39,136.74
299 and 301 University Avenue ............................................. 4,297.12
Pursuant to the terms of the mortgage agreement and applicable Minnesota law, the properties foreclosed upon (the foreclosed properties) were sold. At the time of the 1978 foreclosure, the balance remaining on the loan was $175,206.38.
Petitioner and Franklin entered into on oral contract to redeem the foreclosed properties prior to April 7, 1979. FAB executed a deed, dated April 6, 1979, in which it quitclaimed its interest in the 97 N. Snelling property to Franklin in consideration for "One Dollar and other good and valuable consideration".
FAB and WE filed tax returns showing income or (losses) in the following amounts for the following years:5
Year FAB WE
1970 ................................................... $ (3,046.13) $ --
1971 ................................................... (605.38) --
1972 ................................................... (3,774.64) --
1973 ................................................... 3,430.11 --
1974 ................................................... (10,288.59) (555.88)
1975 ................................................... 3,460.63 (3,398.90)
1976 ................................................... (21,353.01) (23,666.94)
1977 ................................................... 17,168.08 (698.77)
Neither FAB nor WE filed tax returns for taxable years after 1977.
Petitioner filed a tax return for each of the years at issue and an amended tax return for the year 1980. Each such return showed no tax due.
The parties have agreed that, for purposes of this case, the income and expenses of FAB and WE for each year at issue are to be considered the income and expenses of petitioner for each such year.
The parties stipulated that petitioner earned gross income and is allowed business expenses for the years at issue in the following amounts:
Year Gross Income Allowed Expenses
1978 .................................................. $ 53,827.00 $ 47,767.00
1979 .................................................. 85,323.05 71,206.10
1980 .................................................. 80,319.57 75,575.46
1981 .................................................. 119,967.00 100,523.43
1982 .................................................. 88,369.00 96,531.61
1983 .................................................. 88,594.00 90,291.41
The parties further stipulated that petitioner is entitled to a $50 Schedule A campaign contribution credit for the year 1980 and Schedule A expenses for the years 1981 and 1982 equal to $1,476.92 and $678.63, respectively.
On November 8, 1985, petitioner was convicted in Federal District Court on three counts of income tax evasion under section 7201 for the years 1978, 1979, and 1980. This conviction was affirmed by the United States Court of Appeals for the Eighth Circuit on February 3, 1987, and no further appeal was taken.
The parties stipulated that the additions to tax for fraud will apply to any deficiencies for the years at issue.
OpinionWe note initially that the fact that the instant case was submitted pursuant to Rule 122(a) does not alter either party's burden of proof or the effect of a failure of proof. Rule 122(b); Borchers v. Commissioner [Dec. 46,730], 95 T.C. 82, 91 (1990), affd. [91-2 USTC ¶ 50,416], 943 F.2d 22 (8th Cir. 1991). Petitioner generally bears the burden of proving that respondent's determinations in the notices of deficiency are erroneous. Rule 142(a); Welch v. Helvering [3 USTC ¶ 1164], 290 U.S. 111, 115 (1933). Petitioner also bears the burden of proof on any new matters he raises. Rule 142(a). Respondent, however, has the burden of proving fraud, and that burden must be carried by clear and convincing evidence. Sec. 7454(a); Rule 142(b). Respondent also bears the burden of proof in respect of any increase in a deficiency and any new matters that were not raised in the notices of deficiency. Rule 142(a).
Petitioner asserts that he is entitled to deduct certain...
To continue reading
Request your trial