Decision will be entered under Rule 155.
MEMORANDUM OPINION
PANUTHOS, CHIEF SPECIAL TRIAL JUDGE: Respondent determined a deficiency in petitioners' Federal income tax in the amount of $ 1,379 for the taxable year 1994. Respondent also determined petitioners were liable for an accuracy-related penalty under
After concessions by the parties, 1 the issues for decision are: (1) Whether petitioners are entitled to deduct an aggregate partnership loss carryover in the amount of $ 3,313,240 for the 1994 taxable year; 2 (2) whether petitioners are entitled to deduct charitable contributions in the amount of $ 2,024 for the 1994 taxable year; and (3) whether petitioners are liable for the accuracy-related penalty pursuant to
BACKGROUND
Petitioner Wayne Johnson (hereinafter petitioner) is an attorney. Prior to the year in issue, petitioner was one of three general partners in several partnerships organized under the laws of the State of Maine. Additionally, petitioner was one of three principal shareholders in two subchapter C corporations incorporated under the laws of the State of Maine. 4 These entities were established in 1986 and 1987 for the purpose of purchasing, rehabilitating, and managing inner-city structures in Portland, 1999 Tax Ct. Memo LEXIS 469">*471 Maine. The entities incurred substantial recourse debt for the purchase and rehabilitation of the structures, which was financed through Maine Savings Bank and also through section 312 of the Housing Act of 1964, Pub. L. 88-560, 78 Stat. 769, 790, codified at
After the entities failed to pay the debt incurred, the properties which were purchased by the separate entities were foreclosed upon. An outstanding debt remained after the foreclosure, and the entities defaulted on the debt in 1992. The following table illustrates the amount of the debt outstanding after foreclosure of the properties:
Amount Date of
Entity Type Owed Default
______ ____ ____ _______
D'Ambra Merc. Enterprises Subchapter C corp. $ 399,394.48 7/15/92
D'Ambra Corp. Subchapter C corp. 323,845.77 7/15/92
Portland Parris Street Partnership 1999 Tax Ct. Memo LEXIS 469">*472 200,916.17 8/14/92
Associates
Marshview Point Partnership 254,868.96 7/18/92
Partnership
Three-Sixty & One Partnership 760,818.57 6/18/92
One Associates
Fifty-Nine Bramhall St. Partnership 243,291.23 8/14/92
Associates
Cumberland Hanover Partnership 56,561.28 8/14/92
Associates
Cumberland Hanover Partnership 117,832.76 7/31/92
Associates
Park Avenue One Partnership 974,468.22 6/18/92
Associates _____________
Total debt owed --- $ 3,331,997.44 ---
Petitioner claimed the following losses on his Federal income tax
returns as his share of the partnership losses incurred: 5
Tax Year Loss Claimed
________ ____________
1991 $ 72,050
1992 3,376,497
1993 3,331,997
1994 3,313,241
Respondent issued petitioners a notice of deficiency for their 1994 tax year. In the notice of deficiency, respondent disallowed petitioners' claimed partnership loss carryover and their charitable contribution deduction. Respondent adjusted petitioners' 1999 Tax Ct. Memo LEXIS 469">*473 claimed medical expense deduction and earned income credit due to the increases in petitioners' adjusted gross income. Respondent determined that petitioners were liable for the self-employment tax and for the accuracy-related penalty. Respondent also determined that petitioners were entitled to a self-employment tax credit.
While no deficiency was determined for 1993, the statement of adjustments attached to the notice of deficiency included adjustments to petitioners' 1993 Federal income tax return. The adjustments for 1993 consisted of the disallowance of petitioners' claimed partnership loss carryover from 1992, charitable contribution deduction, and medical expense deduction. Respondent also made an adjustment to petitioners' claimed earned income credit for 1993 as a result of the adjustment to petitioners' adjusted gross income.
DISCUSSION
We begin by noting that the Commissioner's determinations are presumed correct. See
At 1999 Tax Ct. Memo LEXIS 469">*474 the outset, we have determined that we do not have jurisdiction with respect to the adjustments made to petitioners' 1993 Federal income tax return. Respondent did not determine a deficiency in tax for petitioners' 1993 tax year and did not issue a statutory notice of deficiency to petitioners for the 1993 tax year. See secs. 6212, 6213, 7442; Rules 13, 20;
1. LOSS DEDUCTION
We note that the parties' arguments as to the deductibility of the alleged losses are based on the assumption that all the losses are related to petitioner's partnership interests. As the entities involved also include subchapter C corporations, we shall discuss the applicable law and analysis as applied to these entities separately.
Petitioners claimed a partnership loss in the amount of $ 3,376,497 for the 1992 taxable year. Petitioners claimed a partnership loss carryover in the amount of $ 3,331,997 for the 1993 taxable year, and a partnership loss carryover in the 1999 Tax Ct. Memo LEXIS 469">*475 amount of $ 3,313,241 for the 1994 taxable year. Of these amounts, $ 723,240 consists of claimed losses related to petitioner's interests in two subchapter C corporations. We shall decide whether petitioners are entitled to a partnership loss carryover in the amount of $ 2,590,001 in 1994.
Petitioner has not established that the entities in question incurred a loss in 1992, or any other year. At most, petitioner has established that the partnership entities defaulted on the debt in the amount of $ 2,590,001 in 1992. Even if petitioner had established that the partnerships had incurred a loss, petitioner would not be entitled to a flow-through loss deduction as petitioner has not established his bases in his partnership interests.
The determination of a partner's basis in his or her partnership interest must be made before a partner can deduct 1999 Tax Ct. Memo LEXIS 469">*476 his or her share of partnership losses because losses cannot reduce a partner's basis below zero. See
Petitioner next argues that he is entitled to deduct a loss based on the worthlessness of his partnership interests. In order for petitioner to be entitled to a loss, he needs to establish the worthlessness of his partnership interest and further must substantiate the value of his partnership interests. Even if petitioner's partnership interests became worthless in 1992, he would not be entitled to a loss deduction because he has not established the value of his partnership interests. As we have 1999 Tax Ct. Memo LEXIS 469">*477 previously concluded, petitioner did not present any evidence to establish the amount of his bases in the partnerships. In addition, petitioner did not account for any income, loss, gain, credits, or deductions that are his distributive share as a partner in the partnerships. As petitioner has not established his basis by accounting for his initial and any subsequent contributions to the partnerships, his share of any partnership income, credits, loss, or deductions, he is not entitled to deduct a loss, as provided by
B. SUBCHAPTER C CORPORATION LOSSES
The remainder of petitioners' claimed loss, $ 723,240, originated from petitioner's interests in two subchapter C corporations. As stated previously, petitioner has not established a loss was incurred by the entities in question. Even if he had, petitioner is not entitled to deduct a loss sustained by the corporation as a subchapter C corporation is not a pass-through entity, such as a partnership.
As to the deductibility 1999 Tax Ct. Memo LEXIS 469">*478 of the worthlessness of a taxpayer's stock in a subchapter C corporation,
2. CHARITABLE CONTRIBUTION DEDUCTION
Petitioners claimed a charitable contribution deduction in the amount of $ 2,024 on their 1994 tax return.
If a charitable deduction is made in property other than money, the amount of the contribution is, generally, the fair 1999 Tax Ct. Memo LEXIS 469">*479 market value of the property at the time of the contribution. See
Petitioner testified that petitioners normally make noncash contributions to Goodwill. Petitioner provided no specific testimony as to whether the contributions in issue were in fact made to Goodwill, what the donations specifically consisted of, and the value thereof. Although petitioner repeatedly asserted that respondent's Appeals Officer "did not give [him] a chance to submit Form 8283", petitioner did not submit Form 8283, or any other type of documentation, to substantiate the claimed deduction.
Petitioner's 1999 Tax Ct. Memo LEXIS 469">*480 uncorroborated, vague testimony does not satisfy the substantiation requirements of
3. ACCURACY-RELATED PENALTY
The final issue for decision is whether petitioners are liable for the accuracy-related penalty pursuant to
An exception applies to the accuracy-related penalty when the taxpayer demonstrates (1) there was reasonable cause for the underpayment, and (2) he acted in good faith with respect to such underpayment. See
It is the taxpayer's burden to establish he is not liable for the accuracy-related penalty imposed by
To reflect the foregoing,
Decision will be entered under Rule 155.
1. Petitioner Wayne Johnson concedes he is liable for self- employment tax, and respondent concedes petitioners are entitled to a credit for one-half the self-employment tax paid.↩
2. Neither party has questioned the Court's jurisdiction to adjudicate the partnership loss in this deficiency proceeding, and we therefore assume that the partnerships are small partnerships within the meaning of sec. 6231(a)(1).↩
3. The notice of deficiency contains adjustments to petitioners' medical expense deduction and earned income credit. These are computational adjustments which will be affected by the outcome of the other issues to be decided, and we do not separately address them.↩
4. A fourth partner held a 2-percent interest in the partnerships and corporations.↩
5. For convenience, all subsequent amounts are rounded to the next highest dollar.↩