TaxCourtGarrison

TaxCourtGarrison - T.C. Memo. 2010-261 UNITED STATES TAX...

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T.C. Memo. 2010-261 UNITED STATES TAX COURT WENDELL V. AND SHARON T. GARRISON, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 19988-07, 19989-07. Filed December 1, 2010. Wendell V. and Sharon T. Garrison, pro sese. Roger W. Bracken , for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION GOEKE, Judge : Respondent determined deficiencies in petitioners’ Federal income tax and additions to tax under
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- 2 - section 6651(a)(1) for 1998, 1999, and 2000. 1 After concessions, the issues remaining for decision are: 2 (1) Whether petitioners’ gains from sales of real property during tax years 1998-2000 were ordinary income or capital gain; (2) whether petitioners are liable for self-employment taxes; (3) whether petitioners are entitled to deduct additional costs associated with the gross income received from purchasing and selling real property; (4) whether petitioners are liable for income tax on dividends received; (5) whether petitioners are liable for income tax on interest received in 1998; (6) whether petitioners must reduce their itemized deductions for all years and their child tax credit for 1998; (7) whether petitioners are liable for a failure to timely file addition to tax pursuant to section 6651(a)(1). We resolve these issues against petitioners, except we hold that respondent has not carried the burden of proof with respect to 1 Unless otherwise indicated, all section references are to the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. 2 Respondent concedes the gain on the foreclosure sale of one property known as the Dumbarton property.
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- 3 - the increased deficiencies and additions to tax asserted in his amended answer. FINDINGS OF FACT Petitioners resided in Maryland when they filed their petitions. On March 22, 2002, petitioners filed their delinquent joint Federal income tax returns for tax years 1998, 1999, and 2000. On June 8, 2007, respondent issued a notice of deficiency (notice). On September 4, 2007, petitioners timely filed their petitions in this Court for tax years 1998, 1999, and 2000. The notice mailed to petitioners reflects, among other adjustments, a recharacterization of petitioners’ real estate transactions. Specifically, respondent classified income from these transactions as ordinary income from a trade or business rather than royalty income, or capital gains as petitioners now claim. 3 Respondent made additional adjustments, some resulting from his recharacterization of the income from real estate sales. The overall adjustments are as follows: 1998 1999 2000 Schedule C: Income $834,000 $604,500 $473,000 Capital gain or loss -0- 27 -0- Self-employment tax 13,240 13,789 16,439 Self-employment tax deduction (6,620) (6,895) (8,220) 3 Petitioners contend that they incorrectly reported proceeds from sales of real estate as royalty income on their returns, and they now argue that the proceeds should be capital gains.
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- 4 - Cost of goods sold
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TaxCourtGarrison - T.C. Memo. 2010-261 UNITED STATES TAX...

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