T.C. Memo. 1996-71
UNITED STATES TAX COURT
JOHN EDWARD AND LINDA HALL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6300-94. February 21, 1996.
John Edward Hall, pro se.
Dennis R. Onnen, for respondent.
MEMORANDUM OPINION
KÖRNER, Judge: Respondent determined a deficiency in
petitioners' 1990 Federal income tax in the amount of $22,217 and
a penalty under section 6662(a) in the amount of $5,281 for 1990.
All statutory references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
2
the Tax Court Rules of Practice and Procedure, except as
otherwise noted.
Petitioners, John Edward and Linda Hall, were residents of
Kansas at the time the petition was filed herein. Hereinafter,
all references to "petitioner" refer to John Edward Hall.
In the year 1986, a corporation known as Hall/McCollum
Laboratories, Inc., was formed in the State of Nevada. One
million shares of this corporation were issued to petitioner. In
1987, petitioner sold back to the corporation 800,000 of these
shares, for which he received $150,000.
Thereafter, a dispute arose between petitioner and the
corporation and, after the corporation had changed its name to
HML Medical, Inc., petitioner brought suit against it. In 1990,
the dispute was settled, and the lawsuit was dismissed. As part
of the settlement, petitioner surrendered his remaining 200,000
shares of the corporation to it, in return for the payment to him
of $212,500.
Upon audit, respondent determined that petitioner's
remaining cost basis in his stock in the corporation was only
$8,801, as compared to a basis of $212,500, which petitioner had
claimed in his return. Respondent also disallowed a claimed net
capital loss carryforward of $3,000 contained in petitioner's
return. Finally, respondent, having initially allowed a net
operating loss carryback to petitioner from 1991 to 1990 in the
3
amount of $18,789, has now conceded that such net operating loss
carryback should be increased by $2,000.
As part of the statutory notice of deficiency herein for the
year 1990, respondent also determined a penalty under section
6662(a) against petitioner.
So far as the deficiency in tax is concerned, we think it is
clear in this Court that the burden of proof is upon petitioner
to show error in respondent's determination. Rule 142(a); Welch
v. Helvering, 290 U.S. 111 (1933). This record provides
absolutely no evidence upon which we can determine that
respondent's determination was in error to any extent. There is
no evidence to show petitioner's cost basis in his original one
million shares in the corporation, other than the $44,004
determined by respondent, and there is no evidence to indicate
that respondent's allocation of 20 percent of such original cost
basis, or $8,801, to petitioner's remaining 200,000 shares that
he sold in 1990 was an unreasonable action. At trial, petitioner
claimed that his stock basis in the 200,000 shares was over $1
million, and proffered a written receipt indicating such amount.
Upon cross-examination, however, it developed that this so-called
"receipt" was prepared by petitioner himself, showing money as
coming from himself to himself, and was, in fact, prepared just
before trial of this case. It was admitted solely as a summary
4
of his testimony, and is entitled to no evidentiary weight
whatever.1
Respondent also determined a penalty against petitioner
under section 6662(a), in the amount of $5,281, for the year
1990. That section provides for the imposition of a penalty
equal to 20 percent of the portion of the underpayment, if such
underpayment arises either from negligence, disregard of rules or
regulations, or is attributable to a substantial understatement
of income tax. Section 6662(d) in turn defines a substantial
understatement of income tax as being either 10 percent of the
tax required to be shown on the return for the taxable year, or
$5,000, whichever is greater. The determined deficiency here was
of $22,217, as reported as compared to a reported tax liability
of zero, and was above $5,000. As in the case of the predecessor
section covering cases of this type, section 6653(a), the burden
of proof to show error on the part of respondent is clearly
placed upon petitioner. Neely v. Commissioner, 85 T.C. 934, 947
(1985); Arcadia Plumbing Trust v. Commissioner, T.C. Memo. 1994-
455. The matter was not mentioned by petitioner in pleading, in
trial, or on brief; we cannot be sure if he intended to abandon
it, but in any case respondent's determination of the applicable
penalty must be sustained.
1
The net capital loss carryforward that was disallowed by
respondent was not mentioned in the pleadings, at trial, or on
brief, and we deem it to be abandoned.
5
To give effect to respondent's concession herein with regard
to the amount of allowable net operating loss carryback,
Decision will be entered
under Rule 155.