ACCOUNTING METHODS
See COMPENSATION.
ADDITIONS TO TAX
See also BAD DEBTS;
PARTNERSHIPS; SELF-
EMPLOYMENT TAX; UNITED STATES TAX COURT.
Late Filing Addition-Interest on Substantial Underpayment
Attributable to Tax-Motivated Transaction-Commissioner's Mo-
tion To Dismiss for Lack of Jurisdiction.-Where, after petitioners
had agreed to and paid underlying deficiencies, Commissioner
issued deficiency notices in which he determined late filing
additions to tax under sec. 6651(a)(1) for petitioners' taxable years
1977-79 and increased rate of interest under sec. 6621(c) for
1977-82, and petitioners timely filed petitions for redetermination,
Court granted Commissioner's motion to dismiss for lack of
jurisdiction as to issue of sec. 6621(c) increased interest, since sec.
6651(a)(1) late filing additions to tax were not deficiencies which
were substantial underpayments attributable to tax-motivated
transactions under sec. 6621(c)(4). White v. Commissioner, 95 T.C.
209, followed. Odend'hal v. Commissioner .....
Late Filing-Illness Not an Excuse From Negligence Additions-
Understatement Addition Applies to Delinquent Returns.-Where
H and W had filed no income tax returns for 1977-83; within 5
weeks after contact by IRS in 1984, H and W filed returns and
paid taxes and sec. 6651 additions; and H died in 1986 before
filing of petition, Court determined (1) neither H's declining health
nor self-assessment of sec. 6651 additions precluded imposition of
negligence additions, since H had maintained active accounting
and tax practice and secs. 6653 and 6651 can overlap; (2) sec. 6661
addition applies where delinquent return is filed after IRS contact,
since amount of tax on filed returns is "additional" to zero amount
prior to contact; and (3) sec. 6661 higher rate of 25% of
ADDITIONS TO TAX-Continued
underpayment applies and is not unconstitutional, since amended
section does not create new addition and clearly applies to
additions assessed after enactment date. Estate of McClanahan v.
Commissioner..
Cable Television Franchise-De Facto Monopoly-Valuation of
Goodwill.-Where petitioner telecommunications company pur-
chased cable television systems which it operated in de facto
monopolistic environment granted by governmental body and
without bona fide competition, and petitioner amortized amount
attributable to franchise cost under sec. 1253(d)(2), Court deter-
mined, for petitioner's 1978 taxable year, cable television franchise
was "franchise" for purposes of sec. 1253(b), and, for purposes of
establishing amortization amount after deducting tangible assets
and going concern value, value of cable television franchise did not
include any separate and distinct goodwill asset. Pasadena City
Lines, Inc. V. Commissioner, 23 T.C. 34, followed. Tele-
Communications, Inc. v. Commissioner
Corporation Advances-Capital Contributions-Bona Fides.-
Where in 1976-80 petitioner corporation X advanced cash, materi-
als, and services to subsidiary Y for Y's continuing working
capital, treating advances as accounts receivable; no formal loan
agreements or notes payable were executed, no interest was
charged or paid, and no due date was set for repayments; on Dec.
31, 1980, Y's president bought all outstanding shares of Y from X
in exchange for X's execution of general release discharging Y
from any intercompany liabilities owed to X; and, on its 1980
income tax return, X reported sec. 166 bad debt deduction in
amount of former receivable due from Y, Court determined, on
facts and circumstances, petitioner's advances were capital contri-
butions, not bona fide loans giving rise to debts to which sec. 166
could apply. Calumet Industries, Inc. v. Commissioner ..
Son's Debt to Bank Guaranteed by Father-No Consideration
for Guarantee-Additions to Tax.-Where petitioner, retired
farmer, leased his land to his son, who farmed it; in fall 1984,
petitioner paid $141,000 to bank pursuant to guarantee he had
executed covering his son's farming indebtedness, although son
had given no cash or property as consideration for guarantee; and
petitioner claimed short-term capital loss deduction on his 1984
income tax return on account of worthlessness of his son's debt,
Court determined petitioner was not entitled to sec. 166(d)(1)(B)
nonbusiness bad debt deduction, since (1) reg. 1.166-9(e) required
members of taxpayer's family or household listed under sec. 152 to
give cash or property as consideration for guarantee and (2) loss
was not incurred in petitioner's trade or business or transaction
entered into for profit; and petitioner was liable for additions to
tax under sec. 6653(a) for negligence or intentional disregard of
rules and regulations (on burden of proof grounds), and under sec.
6661 for "substantial understatement” of income tax since he
failed to show substantial authority for claimed deduction or to
disclose relevant facts in statement in or attached to return. Lair
v. Commissioner...
Adjustment for Fire Loss to Coke-Producing Plant-Demolition
or Rehabilitation-Cost Attributable to Land or Improvements.—
Where on its 1978 income tax return petitioner corporation,
pursuant to sec. 1016(a)(1), capitalized cost of work done to
rehabilitate its fire-damaged coke-producing plant, added cost to
its basis in plant, and depreciated cost over 15-year useful life; and
Commissioner argued that expenditures constituted "demolition"
allocable to basis in land, Court determined petitioner correctly
allocated its rehabilitative costs to basis in plant, inasmuch as reg.
1.165-3(a)(1) was inapplicable because no demolition occurred.
Tonawanda Coke Corp. v. Commissioner...
BURDEN OF PROOF
See also CREDITS AND EXEMPTIONS.
Fully Stipulated Record-Substantially Indefinite Computer
Equipment Leases-Petitioner's Prima Facie Case and Commis-
sioner's Burden of Going Forward With Evidence.-Where petition-
ers claimed investment tax credit for 1982 with respect to newly
acquired computer equipment they leased to their wholly owned
corporation for 12-month terms with no provision for renewal, and
case was submitted on fully stipulated record, Court determined
stipulated facts were to be treated same as facts found on basis of
evidence submitted at trial; burden of proof was on petitioners,
who made prima facie case by presenting leases that were formally
only for 12-month period; Commissioner discharged his burden of
showing facts in stipulated record overcoming prima facie case;
and petitioners failed to carry their burden of proof under sec.
46(e)(3)(B) that leases were not substantially indefinite in duration.
Borchers v. Commissioner.
CAPITAL EXPENDITURES
See BAD DEBTS.
Nonqualified Deferred Compensation Arrangement-Accrued In-
terest Component of Accumulated Account Balance for Future
Services-Interest or Deferred Salary.-Where petitioner, accrual
basis corporation in retail food and drug trade, had established
nonqualified deferred compensation arrangements (DCA's) for eight
key executives and one outside director; DCA's were unfunded and
represented petitioner's unsecured contractual obligations to pay
specified, albeit deferred, sums to each DCA participant for future
services; petitioner maintained bookkeeping accounts for each DCA
participant reflecting amount of deferred compensation plus
amount designated as "interest," which component was com-
pounded monthly; and petitioner claimed sec. 163 interest deduc-
tion on its 1983 income tax return for DCA interest component
accruing during fiscal 1983, Court determined amount designated
as interest on DCA accounts was not deductible sec. 163 interest,
but instead represented deferred compensation for personal ser-
vices that was deductible by petitioner only as permitted by sec.
404(a)(5) or 404(d) in year when amount was actually paid and
included in gross income of recipient. Albertson's, Inc. v. Commis-
sioner...
Regulations-Literal Application-Rehabilitation Losses Ex-
cluded from Built-In Deductions.-Where petitioner bank holding
company X acquired insolvent bank Y; to conform to investment
guidelines, X restructured Y's asset base by selling certain of Y's
assets, mortgages, and loans; and X claimed resulting recognized
losses on consolidated returns to offset income of other group
members and as carrybacks on amended consolidated returns,
Court determined losses incurred in rehabilitating Y were not
built-in deductions within literal language of reg. 1.1502-15(a)(2)
and were therefore deductible as claimed by X, since no reason was
shown why regulation should not be applied as written. Idaho First
National Bank v. Commissioner...
Savings and Loan Association-Interest Expense Deduction
Claimed on Short Period Return-Clear Reflection of Income.—
Where petitioner building and loan association filed consolidated
returns with its affiliated group for taxable years 1971 through
Dec. 23, 1982, when X corporation acquired petitioner; pursuant to
consolidated return regulations, petitioner filed separate income
tax return for short period from Dec. 23 to Dec. 31, 1982, on which
it reported its income for short period and claimed deduction for
interest paid or credited during short return period, although
interest had accrued over final 6 months of 1982; and, pursuant to
sec. 461(e), Commissioner limited interest-expense deduction to
amount of interest which accrued during short period, plus
one-tenth of remainder, Court determined petitioner was entitled to
entire claimed interest-expense deduction since reg. 1.1502-76(b)(4)
excluded application of sec. 461(e) and since Commissioner could
not reject, as not providing clear reflection of income, petitioner's
consistent deduction of interest expense as provided in sec. 591.
Southern California Savings & Loan Association v. Commissioner....
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