1999 Tax Ct. Memo LEXIS 27">*27 Decision will be entered under Rule 155.
HELD: P has failed to establish the existence, amount, or worthlessness in the years at issue of claimed nonbusiness and business bad debts. P has also failed to substantiate itemized deductions disallowed by R. P is liable for accuracy-related penalties for negligence under
MEMORANDUM 1999 Tax Ct. Memo LEXIS 27">*28 OPINION
LARO, JUDGE: Richard T. and Miriam Stanley petitioned the Court to redetermine 1992 through 1994 income tax deficiencies of $ 97,474, $ 152,220, and $ 5,569, respectively, and accuracy-related penalties for negligence under
This case was submitted to the Court without trial pursuant to Rule 122(a). After moving jointly to submit this case for trial on the basis of the pleadings and the facts recited and the exhibits in the stipulation of facts, petitioners' attorney was ordered to file a brief no later than November 13, 1998. Despite repeated admonitions that the brief was required and overdue, petitioner's attorney has failed to file with the Court his brief in this matter. We must decide the case, therefore, on the record1999 Tax Ct. Memo LEXIS 27">*29 before us, without benefit of petitioner's arguments.
Following concessions by the parties, we must decide whether petitioner is entitled to deduct nonbusiness bad debts of $ 498,500 for 1993. We must also decide whether petitioner is entitled to deduct business bad debts of $ 2,041,409 for 1994. Finally we must decide whether petitioner is subject to accuracy-related penalties for negligence pursuant to
BACKGROUND
The following facts have been stipulated and are so found. The stipulations of fact and the attached exhibits are incorporated herein by this reference. Petitioners filed joint tax returns for the years in issue. Petitioners resided in1999 Tax Ct. Memo LEXIS 27">*30 Pickens, South Carolina, on the date they filed their petition.
Petitioner is the founder of H.E. Stanley Pharmaceuticals and Subsidiaries, hereinafter referred to as the company. The company was founded to carry on work begun by petitioner's father who was a medical missionary in Haiti. Its primary focus was the manufacture and sale of preparations containing an ingredient known as QRB-7 for the treatment of certain skin disorders. Petitioner was the company's majority shareholder at least up to a certain point in 1992. He was its president, chief executive officer, and motivating force through the end of 1993. He was the company's largest shareholder up to the time it ceased operations.
[6] For the period 1987 through 1994, the company paid petitioner the following salary:
1987 | $ 76,327 |
1988 | 77,675 |
1989 | 75,000 |
1990 | 64,904 |
1991 | 82,500 |
1992 | -0- |
1993 | 31,731 |
1994 | -0- |
Over the period 1991 through 1993, petitioner made a number of cash advances to the company in the form of 90-day promissory notes bearing 10 percent interest. These advances, totaling $ 1,994,518, were never repaid. On December 16, 1993, the company issued a note in favor of petitioner (the December 19931999 Tax Ct. Memo LEXIS 27">*31 note) in the amount of $ 2,656,617.
Petitioner filed suit against the company in August 1994 to enforce the December 1993 note. In January 1995, petitioner filed a motion for summary judgment in this litigation. When the company sought to compel arbitration, petitioner successfully resisted. As recently as October 1995, petitioner was pursuing this litigation.
DISCUSSION
In 1993, petitioner claimed a nonbusiness bad debt deduction of $ 498,500. In 1994, he deducted business bad debts of $ 2,041,409. Respondent argues that petitioner has failed to establish the existence, nature, or worthlessness of the alleged bad debts. We agree that petitioner has failed to prove his entitlement to any bad debt deductions.
Petitioner must prove that respondent's determinations set forth in the notices of deficiency are incorrect. Rule 142(a);
In 1994, petitioner claimed a business bad debt deduction for advances to the company amounting to $ 2,041,409. We note initially that the amount petitioner claimed exceeds the amount he advanced to the company. But the key weakness in petitioner's position is that he once again fails to identify or demonstrate any particular circumstance or set of circumstances that would establish that his advances became worthless in 1994.
As to the accuracy-related penalty,
To reflect concessions of the1999 Tax Ct. Memo LEXIS 27">*35 parties,
Decision will be entered under Rule 155.
1. Respondent also disallowed deductions of $ 32,121 for unreimbursed employee business expenses in 1993 and legal fees of $ 26,976 in 1994. Petitioners raised no issue as to these disallowances in their petition and offered no evidence to support them. We treat these disallowances as having been conceded.↩