T.C. Memo. 1997-80
UNITED STATES TAX COURT
JUDY DAVIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11713-94. Filed February 18, 1997.
Judy Davis, pro se.
C. Glenn McLoughlin, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined deficiencies in and
additions to petitioner's Federal income taxes as follows:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1990 $27,179 $6,795 ---
1991 28,752 7,188 $1,656
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All section references are to the Internal Revenue Code in effect
for the years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
After concessions,1 the issues for decision are:
(1) Whether petitioner failed to report wage income from
Flair Agency, Inc. (Flair), for the years 1990 and 1991 in the
amounts of $45,325 and $47,550, respectively; and
(2) whether petitioner may deduct net operating losses
(NOLs) for the years 1990 and 1991 in excess of the $13,935
allowed by respondent for the year 1990.
FINDINGS OF FACT
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. Judy Davis resided in
Edmond, Oklahoma, at the time the petition was filed. Ms. Davis
did not file individual Federal income tax returns and was
unmarried during the years in issue.2
1
Petitioner in her brief states: "Petitioner for the
primary purpose of resolving this matter at the trial court
level, temporarily concedes all issues set out in the Trial
Memorandum for Respondent filed with the Court on March 8, 1996
* * * except the following: [issues number 1 and 2 above]". As
petitioner in her brief does not otherwise contest respondent's
deficiency determinations or additions to tax and did not offer
any evidence at trial, we conclude that petitioner has conceded
the uncontested items. Money v. Commissioner, 89 T.C. 46, 48
(1987).
2
Unless otherwise indicated, all descriptions of
petitioner pertain to the 1990 and 1991 years.
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Respondent's Reconstruction of Ms. Davis' and Flair's Income
Ms. Davis was a "nonselling" real estate broker licensed by
the State of Oklahoma; she worked in the Oklahoma City area. Ms.
Davis conducted her real estate operations primarily through
Flair, an Oklahoma corporation. Flair was a cash method taxpayer
that used the calendar year to compute its taxable income.3
Flair filed an election under section 1362 to be treated as
an S corporation on January 6, 1986, and filed a U.S. Income Tax
Return for an S Corporation (Form 1120S) for the year 1989.
There is no evidence that Flair's S corporation election was
terminated. Ms. Davis owned 60.55 percent of the stock in Flair
during 1989. There is no evidence that Ms. Davis' percentage of
stock ownership in Flair changed during the years in issue.
Flair did not file tax returns for the years in issue.
Respondent used a bank deposits analysis to reconstruct
Flair's gross receipts. Flair deposited its gross receipts into
three bank accounts at First Enterprise Bank, Oklahoma City,
Oklahoma.
Ms. Davis was the president of Flair and was responsible for
the overall operations of the real estate company. Flair
deposited corporate funds in the amounts of $45,325 and $47,550
into Ms. Davis' personal bank account at First Enterprise Bank
during the years 1990 and 1991, respectively. Ms. Davis used the
3
Unless otherwise noted, all descriptions of Flair pertain
to the 1990 and 1991 tax years.
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transferred funds to pay personal living expenses. Ms. Davis
received no other compensation from Flair. In the notice of
deficiency, respondent treated these deposits as wages to Ms.
Davis, deductible by Flair.
Unexplained Deposits
During the taxable years 1990 and 1991, Ms. Davis deposited
$59,582 and $54,612, respectively, into her personal bank account
at First Enterprise Bank. Ms. Davis' deposits into First
Enterprise Bank, Oklahoma City, Oklahoma, included the $45,325
from Flair for the year 1990 and the $47,550 from Flair for the
year 1991.
Country Club Properties
Ms. Davis' individual Federal income tax returns for the
taxable years 1986 and 1987 included her distributive share of
losses from a partnership, Country Club Properties (Country
Club). Ms. Davis' individual Federal income tax return for the
taxable year 1988 did not include her distributive share of
ordinary losses from Country Club.
Ms. Davis' distributive share of ordinary losses, net
section 1231 gains, and income from discharge of indebtedness
from Country Club for the year 1989 was:
Net loss from rental real estate operations ($32,691)
Net section 1231 gain 103,246
Income from discharge of indebtedness 240,598
Ms. Davis' individual Federal income tax return for the year 1989
did not include the above items.
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OPINION
Neither petitioner nor Flair filed income tax returns or
kept accounting records other than bank statements and canceled
checks for the years in issue. Respondent's revenue agent was
forced to construct records of income and expense for both
petitioner and Flair. Petitioner offered little in the way of
testimony at trial and called no witnesses. As the following
colloquy between the Court and petitioner illustrates, petitioner
did not dispute respondent's reconstruction of income:
THE COURT: Do you have any -- do you dispute as
to how the revenue agent came up with his numbers?
MS. DAVIS: I don't know whether I have a dispute
or not. I mean, I think that he [the revenue agent]
did that in a remarkably good way. * * * And I have
absolutely no issue with Mr. Talbott [the revenue
agent] or Mr. McLoughlin [respondent's counsel].
A. Wage Issue
Petitioner argues on brief that the amounts received from
Flair were either loan payments or return of capital.
Petitioner's arguments, however, incorporate facts that are not
in the record. Assertions on brief are not evidence. See Rule
143(b). There is no evidence in the record that the amounts
received by petitioner from Flair were not compensation to
petitioner. Petitioner kept no accounting records; section 6001
requires taxpayers to maintain adequate records from which their
tax liability can be determined. Petzoldt v. Commissioner, 92
T.C. 661, 686 (1989). Respondent's determinations in the
statutory notice of deficiency are presumed to be correct.
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Petitioner bears the burden of proving that respondent erred in
her determination. Rule 142(a). Petitioner has failed to prove
that the amounts received from Flair were not income.
Consequently, we sustain respondent's determination on this
issue.
B. NOL Issue
Petitioner argues that she is entitled to an NOL carryover
deduction generated by losses in Country Club. Petitioner wants
the Court to allow her deductions for Country Club's losses but
not to take into account the section 1231 gain or income from
discharge of indebtedness shown on Country Club's 1989 tax
return, which exceeded the losses. Deductions are a matter of
legislative grace; petitioner has the burden of showing that she
is entitled to any deduction claimed. New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). Petitioner offers her 1989
tax return as proof that she is entitled to a NOL deduction. A
tax return is merely a statement of a taxpayer's position and is
not evidence of the correctness of the figures and information
contained therein. Wilkinson v. Commissioner, 71 T.C. 633, 639
(1979). Petitioner has not proved either the fact or the amount
of any net operating loss for 1990 or 1991 in excess of the
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amount conceded by respondent.4 Consequently, we sustain
respondent's disallowance.
In reaching all of our holdings herein, we have considered
all arguments made by petitioner and to the extent not mentioned
above find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.
4
Respondent's notice of deficiency allowed petitioner a
NOL deduction of $13,935 for the 1990 taxable year. Respondent
has conceded the NOL deduction allowed in the notice of
deficiency.