T.C. Summary Opinion 2002-111
UNITED STATES TAX COURT
DAN B. ISAAC, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7581-01S. Filed August 28, 2002.
Dan B. Isaac, pro se.
Frank J. Jackson, for respondent.
POWELL, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed.1 The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year in issue,
and Rule references are to the Tax Court Rules of Practice and
Procedure.
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Respondent determined a deficiency of $28,125 in
petitioner’s 1997 Federal income tax and additions to tax under
sections 6651(a)(1), (a)(2), and 6654(a) in the respective
amounts of $6,328.12, $4,500, and $1,515.18. After concessions,2
discussed infra, the issues are petitioner’s basis in 600 shares
of IBM stock sold by petitioner on September 19, 1997, and
petitioner’s entitlement to a dependency exemption deduction and
head of household filing status. Petitioner resided in New York,
New York, at the time the petition was filed.
The facts may be summarized as follows. Petitioner did not
file a Federal income tax return for the 1997 taxable year. In
paragraphs 9 and 10 of the Stipulation of Facts, the parties
stipulated that the amount realized by petitioner from the sale
of securities was $112,340 and that of this amount “Stock in the
amount of $52,419.00 had a cost basis of $39,411.00 resulting in
a $13,008.00 gain of which $1,701.00 is long term gain,
$12,286.00 is a short term gain and $979.00 is short term loss.”
The parties also agree that the difference between the gross
sales ($112,340) and the $52,419 referred to above is $59,9213
2
It is stipulated that during 1997 petitioner received (1)
Social Security benefits of $11,397, interest income of $39,
dividend income of $1,269, and royalty payments of $1,000. Also,
petitioner has never disputed that he is liable for the failure
to file and failure to pay additions to tax under secs.
6651(a)(1), (a)(2), and 6654(a).
3
The brokerage statement shows that the amount received was
(continued...)
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and is from the sale of 600 shares of IBM stock sold on September
19, 1997.
The basic problem with this case is that we have precious
little evidence. During 1996 and 1997, petitioner made a number
of trades including long and short stock transactions and “puts”
and “calls”. We have end-of-the-year tax statements for 1996 and
1997 and three different confirmations of the sale of 600 shares
of IBM stock. One of the confirmations canceled another purchase
confirmation. None of the confirmations refer to specific stock
purchased and neither do the tax statements. Although petitioner
received monthly statements, none of them were introduced into
evidence. With this sparse record, we do the best that we can in
sorting out the facts. We must rely on inferences, and absolute
certainty is impossible. To a great extent these uncertainties
bear heavily against petitioner because the inexactitude is of
his own making. See Cohan v. Commissioner, 39 F.2d 540, 544 (2d
Cir. 1930). For convenience we have combined our findings of
fact and discussion.
1. Transaction Involving IBM Stock
At trial, petitioner testified that he frequently traded IBM
stock, but he could not identify any purchase of the 600 shares.
He further testified that he did not know his cost basis for the
3
(...continued)
$59,923. The difference ($2) from the stipulated figure appears
to be the result of rounding figures in the stipulation.
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600 shares. We note that on May 27, 1997, IBM stock was split 2
for 1.
The tax statement for 1996 shows that petitioner sold 100
shares of IBM stock for $11,249.62 on March 8, 1996, purchased
200 shares of IBM stock for $23,275 on March 11, 1996, and had
received a dividend from IBM of $25 on March 11, 1996. The
receipt of this dividend indicates that he must have owned IBM
stock prior to the sale on March 8, 1996, because the
distribution record date had to have been prior to that date.
Furthermore, the quarterly dividend rate for IBM at that time was
$.25 per share, indicating that petitioner owned 100 shares. The
1996 statement also shows that petitioner sold 100 shares on
December 30, 1996. Thus, at the end of 1996, petitioner owned
100 presplit shares of IBM stock purchased for $11,637.50
($23,275 divided by 2) on March 11, 1996.
During 1997, the statement for that year shows that
petitioner purchased: 100 presplit shares of IBM stock for
$15,287.50 on January 28, 1997, 200 postsplit shares of IBM stock
for $20,550 on September 26, 1997, 400 postsplit shares of IBM
stock for $38,975 on October 28, 1997, and 200 postsplit shares
of IBM stock for $20,237.50 on October 29, 1997. That statement
also shows that he sold 100 presplit shares on January 23, 1997,
100 presplit shares on May 16, 1997, and the 600 postsplit shares
on September 19, 1997.
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From this we distill the following. First, prior to March
8, 1996, petitioner owned 100 shares of IBM stock, as evidenced
by the fact that he received the March 11, 1996, dividend.
Second, during 1996, petitioner purchased and sold 200 shares of
IBM stock. He, therefore, still owned the same number of shares
that he owned prior to March 11, 1996. Third, during January
1997, petitioner purchased 100 shares and sold 100 shares of
presplit stock.
During 1997, petitioner purchased 900 shares and sold 800
shares as follows:
Transaction Balance of Shares
1997 Opening Balance IBM Shares 100
Sell 1/23 100 15,374 -0-
Buy 1/28 100 15,287 100
Sell 5/16 100 15,424 -0-
May 27, 1997 - 2:1 Stock Split
Sell 9/19 600 59,923 (600)
Buy 9/26 200 20,500 (400)
Buy 10/28 400 38,975 -0-
Buy 10/29 200 20,237 200
The cost of shares is petitioner’s basis for determining a
gain or loss on the transaction. See secs. 1011, 1012, 1016. In
attempting to identify which shares were sold, and in the absence
of other identification, we use the first-in first-out method of
accounting. Kluger Associates, Inc. v. Commissioner, 617 F.2d
323, 326-327 (2d Cir. 1980), affg. 69 T.C. 925 (1978); sec.
1.1012-1(c)(1), Income Tax Regs. With regard to the sale on
January 23, 1997, this stock was purchased on March 11, 1996, for
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$11,637.50; there was, therefore, a short-term capital gain of
$3,736.50. With respect to the May 16, 1997, sale, this stock
was purchased on January 28, 1997, for $15,287 and sold for
$15,424, resulting in a short term capital gain of $137. With
regard to the September 19, 1997, sale, petitioner owned no
shares of IBM stock and this must have been a short sale that was
covered on September 26, 1997 (200 shares for $20,500) and on
October 28, 1997 (400 shares for $38,975) with income realized in
the amount of $548 ($59,923 - ($20,500 + $38,875)). To the
extent, however, that any of these transactions were included in
paragraph 10 of the Stipulation of Facts and are inconsistent
with that stipulation, the stipulation will control in the Rule
155 computation.
2. Other Issues
Initially, we observe that petitioner has the burden of
proof.4 When this case was called from the calendar on February
4, 2002, there had been no meaningful communication with
respondent’s counsel. Petitioner was instructed to get his
records and meet with counsel for respondent that day.
Petitioner did obtain some records and met with counsel. The
case was recalled on February 5, 2002, and set for trial 8 days
4
Sec. 7491(a)(1) places the burden of proof on respondent in
certain cases. Petitioner, however, has not satisfied the
requirements of sec. 7491(a)(2). Accordingly, sec. 7491(a)(1)
has no bearing on the resolution of this case.
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later at 3:00 p.m. on February 13, 2002. At a pre-trial
conference the morning of February 13, 2002, petitioner for the
first time raised the question whether he was entitled to various
deductions, including a dependency exemption deduction for his
daughter, certain alleged personal and business expense
deductions, and losses from trading in options. None of these
items were raised in the petition, and, with one exception, we
decline to entertain these issues at this late date.5 See Rule
34(b)(4). Allowing petitioner to belatedly raise these issues
would be unfair to respondent. See Toyota Town, Inc. v.
Commissioner, T.C. Memo. 2000-40, affd. sub nom. Bob Wondries
Motors, Inc. v. Commissioner, 268 F.3d 1156 (9th Cir. 2001).
The one exception concerns petitioner’s dependency exemption
claim. Petitioner is unmarried and has a daughter who lives with
him. Petitioner’s daughter was 10 years old during the year at
issue and received approximately $900 a month or $10,800 per year
from Social Security. Petitioner did not pay more than half of
the daughter’s support. Petitioner argues that he is entitled to
claim a dependency exemption deduction for his daughter.
5
We note, however, that petitioner has not substantiated the
alleged business deductions and it appears that even if we were
to accept the evidence, such as it is, with regard to the
personal deductions, the amount would not exceed the basic
standard deduction contained in sec. 63(b). Finally, while
petitioner did engage in option trading, the record is devoid of
evidence from which we could even make an estimate of his gains
and losses.
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Section 152(a) defines a dependent, inter alia, as a
daughter of the taxpayer “over half of whose support, for the
calendar year * * * was received from the taxpayer”. Since
petitioner did not contribute over half of his daughter’s
support, she is not a dependent and petitioner is not entitled to
claim a dependency exemption deduction for his daughter under
section 151(c).
Nonetheless, under section 1(b), a head of household is
entitled to a more favorable filing status than a single
individual. A head of household is defined, inter alia, as an
individual who is not married and maintains a household “which
constitutes for more than one-half of such taxable year the
principal place of abode” of an unmarried daughter. Sec.
2(b)(1)(A)(i). Petitioner satisfies these requirements and is
entitled to head of household filing status.
After the stipulation was filed and this case was tried,
petitioner moved to reopen the record. Respondent objected as to
some of the documents that petitioner lodged with the motion. To
the extent that we found the documents relevant and trustworthy,
we have incorporated them in this opinion. In all other
respects, petitioner’s motion is denied.
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Reviewed and adopted as the report of the Small Tax Case
Division.
An appropriate order will
be issued, and decision will
be entered under Rule 155.