T.C. Memo. 2005-280
UNITED STATES TAX COURT
KENNETH W. STEJSKAL, SR. AND JANE STEJSKAL, ET AL.,1 Petitioners
v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 2275-04, 2276-04, Filed December 5, 2005.
2277-04, 2278-04.
Joe Alfred Izen, Jr., for petitioners.
Daniel N. Price, for respondent.
1
Cases of the following petitioners are consolidated
herewith: Stejskal Enterprises Trust, docket No. 2276-04; Total
Health Center Trust, docket No. 2277-04; and Bioactive Kansas
Trust, docket No. 2278-04.
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MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined deficiencies in and
additions to tax with respect to petitioners’ Federal income tax
for 1999 as follows:
Additions to tax/penalties
Internal Revenue Code
Docket No. Deficiencies Sec. 6651(a)(1) Sec. 6662(a)
2275-04 $112,919 $16,937.85 $22,583.80
2276-04 347,030 52,054.50 69,406.00
2277-04 374,189 56,128.35 74,837.80
2278-04 373,621 56,043.15 74,724.20
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. The deficiencies included “whipsaw” determinations
against petitioner trusts in the event that the validity of the
trusts was sustained by the Court. However, in a stipulation of
settled issues, the parties agreed:
1. Stejskal Enterprises Trust, Bioactive Kansas
Trust, and Total Health Center Trust should be
disregarded for tax purposes because the trusts were
grantor trusts, lacked economic substance, or were
assigned income attributable to Petitioners Kenneth W.
Stejskal, Sr. and Jane Stejskal.
* * * * * * *
3. All income reported by Stejskal Enterprises
Trust, Bioactive Kansas Trust, and Total Health Center
Trust is properly reportable by Petitioners Kenneth W.
Stejskal, Sr. and Jane Stejskal on their Individual
Income Tax Return, Form 1040, on Schedule C, Profit or
Loss from Business.
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4. All substantiated expenses allowed under the
I.R.C. attributable to Stejskal Enterprises Trust,
Bioactive Kansas Trust, and Total Health Center Trust
are properly reportable by Petitioners Kenneth W.
Stejskal, Sr. and Jane Stejskal on their Individual
Income Tax Return, Form 1040.
At trial, petitioners conceded the addition to tax under section
6651(a)(1) and the penalty under section 6662 with respect to
Kenneth W. Stejskal, Sr., and Jane Stejskal (petitioners). After
these concessions, the issues for decision are whether gross
receipts reported by Bioactive Kansas Trust were counted twice
when the income of the several trusts was reallocated to
petitioners and whether petitioners are entitled to cost of goods
sold in excess of that allowed by respondent.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Texas at the time that they filed their
petitions. In 1977, petitioners incorporated Stejskal
Enterprises, Inc. Stejskal Enterprises, Inc., operated retail
stores in Kansas selling health supplements and other products.
Petitioners were corporate officers and were actively involved in
the operations of Stejskal Enterprises, Inc.
Stejskal Enterprises, Inc., elected to be taxed as an S
corporation commencing on or about January 1, 1994. During 1999,
the businesses formerly conducted by Stejskal Enterprises, Inc.,
were primarily conducted under the name Stejskal Enterprises
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Trust, with a small portion conducted under the name Bioactive
Kansas Trust. During 1999, the business was conducted through
retail stores in Kansas and one store in Texas. Separate books
and bank accounts were maintained for the Kansas stores and the
Texas store.
Bioactive Kansas Trust filed a Form 1041, U.S. Income Tax
Return for Estates and Trusts, for 1999. On Schedule C, Profit
or Loss From Business, Bioactive Kansas Trust reported gross
receipts of $66,003. The gross receipts reported by Bioactive
Kansas Trust were attributed to petitioners in the statutory
notice of deficiency sent to petitioners.
Stejskal Enterprises Trust filed a Form 1041 for 1999. On
Schedule C of that return, Stejskal Enterprises Trust reported
gross receipts of $781,121 and cost of goods sold of $397,751.
The cost of goods sold amount was computed on the Schedule C as
follows:
Inventory at beginning of year $171,607
Purchases 448,052
Total 619,659
Less: Inventory at end of year 221,908
Total cost of goods sold $397,751
The trial balance for Stejskal Enterprises Trust as of
December 31, 1999, showed purchases in the amount of $397,751.
The beginning inventory reported on Schedule C coincided with the
amount reported at the end of 1998. Neither the trial balance
nor any other record produced by petitioners showed an amount for
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ending inventory corresponding with the amount reported on the
Schedule C. The amount shown as ending inventory ($221,908) was
carried forward on other returns, including an amended return for
2000 filed for Stejskal Enterprises Trust in July 2004.
Audit of petitioners’ individual returns and the returns for
the various trusts commenced in 2003. Petitioners declined to
meet with the Internal Revenue Service agent. The agent met with
petitioners’ daughter-in-law, Bonnie Stejskal, and Janet S.
Wilkerson (Wilkerson), the certified public accountant who
prepared returns for petitioners and for the trusts. Bonnie
Stejskal signed the 1999 Forms 1041 for Stejskal Enterprises
Trust and Bioactive Kansas Trust.
Among the adjustments to petitioners’ income made in the
notices of deficiency was to reduce purchases by Stejskal
Enterprises Trust to $397,480 and, consequently, to reduce cost
of goods sold to $347,179.
OPINION
Paragraph 10 of the stipulation that was filed at the time
of trial set forth that “Petitioners concede that they bear the
burden of proof under I.R.C. sec. 7491 on all income, expense,
and deduction issues to be tried.” Petitioners also conceded the
negligence penalty under section 6662 and the addition to tax for
failure to file timely under section 6651(a)(1). The issues for
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trial were identified in petitioners’ counsel’s opening statement
as follows:
the question is whether all of the deposits from one
account to another, who had as their source funds that
have already been counted as a gross deposit for one
account, have they been accounted for in the gross
income figure. That’s one issue.
Then the other issue about the cost of goods sold,
I just say this. * * * So whatever cost of goods sold
indicate that the testimony that you hear and when
these items were purchased, we’re trying to deal with
items that were purchased from January 1 through
December 31 in the taxable year.
We’re not trying to get any adjustments outside of
that for anything, so we’re strict cash basis.
And that’s it. That more or less outlines the
testimony I expect to present.
Nowhere in their posttrial briefs do petitioners point to
any evidence that would establish that the gross receipts
reported by Bioactive Kansas Trust were included more than once
in any calculation of gross receipts ultimately attributed to
petitioners. Nowhere in their posttrial briefs do petitioners
point to any evidence of the correct amount of purchases to be
included in the cost of goods sold calculation for the businesses
during 1999.
The arguments set forth in petitioners’ briefs do not
address the issue of purchases identified at the commencement of
trial. Petitioners’ argument in their briefs with respect to the
cost of goods sold issue claims unexplained and unquantified
inventory adjustments, such as alleged “shrinkage”. Yet no
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“correction” of the 1999 ending inventory had been made on
filings as late as July 2004. At the time of trial, Wilkerson
admitted that the amount shown on the tax return as purchases
during 1999 was an error, which she attributed to “an input error
into the computer program that I use for tax preparation by a
part-time person I had working for me.” Wilkerson testified:
Q [Petitioners’ counsel] As far as the cost of
goods sold is concerned that’s on the return versus the
one that’s on the workpapers or the accounting records,
which one is accurate?
A [Wilkerson] The ones that–-in the accounting
records.
Q So that would mean that the return was
overstated by $50,000?
A Yes.
Petitioners have not shown any error in respondent’s calculation
of cost of goods sold for 1999.
In their briefs, petitioners disregard their concession at
trial of the negligence penalty, and they argue that the penalty
amount should be reduced. Even if petitioners were not bound by
their stipulation, which they are, they have not identified, much
less established, any adjustments not due to negligence that
would justify reduction of the penalty.
The record in these cases is thus devoid of any credible
evidence from petitioners that would substantiate any of their
claims. The parties’ briefs devote substantial space to
quarreling with what the revenue agent did or did not do–-matters
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irrelevant to the issues in these cases. See Greenberg’s
Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974).
Petitioners’ concession in the stipulation that they bear the
burden of proof on all issues is consistent with their failure to
cooperate during the course of the audit, the absence of required
books and records during the audit or at trial, and their failure
to present credible evidence at trial. See sec. 7491(a).
Because of their concession, it is unnecessary for us to make any
findings concerning events occurring during the audit.
Respondent does not dispute that petitioners would be
entitled to offset against gross receipts any substantiated
deductions attributable to Bioactive Kansas Trust. However,
petitioners produced only Bonnie Stejskal’s vague testimony,
which did not identify, explain, or quantify any of the alleged
deductions and expenses. There is no evidentiary basis in this
record for any estimates of deductible expenses. See Williams v.
United States, 245 F.2d 559 (5th Cir. 1957); Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985).
Petitioners have failed to prove that they are entitled to
any adjustments other than those set forth in the stipulations.
To give effect to the stipulations,
Decisions will be entered
under Rule 155.