Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6653(b)(1)(A) Sec. 6653(b)(1)(B) Sec. 6661
1986 $256,295 $34,692 $88,473 50 percent of the $28,401
interest due on
$113,605
1987 $12,973 -- $12,791 50 percent of the $3,124
interest due on
$12,497
The issues for decision are: (1) Whether petitioners failed to report
income of $59,648, $242,669,1 and $50,746 on delinquent returns filed for the
years 1985, 1986, and 1987, respectively; (2) whether petitioners are entitled
to deduct embezzlement losses of $21,800 and $215,000 in 1985 and 1986,
respectively; (3) whether petitioners are entitled to deductions of $20,253,
$141,418, and $37,348 in 1985, 1986, and 1987, respectively, for ordinary
losses allegedly incurred by Ard Rhei, Inc., a small business corporation (S
corporation) under section 1366;2 (4) whether petitioner John J. Burke is
liable for an addition to tax for fraud3 under section 6653(b);4 (5) whether
petitioner Vivian Burke tacitly consented to the filing of a joint Federal
1In her answer, respondent determined an increased deficiency against
petitioners for 1986 in order to reflect an additional $22,448 of funds
allegedly embezzled by Mr. Burke and transferred to Ard Rhei, Inc. As a
result of this increased deficiency, respondent also increased the amounts of
the additions to tax against petitioners for fraud, delinquent filing, and
substantial understatement of income tax. This Court has jurisdiction to
redetermine the correct amount of a taxpayer's deficiency even when the amount
so redetermined is greater than the amount listed by respondent in her notice
of deficiency. Sec. 6214(a), I.R.C. Respondent bears the burden of proof,
however, with respect to "any new matter, increases in deficiency, and
affirmative defenses, pleaded in the answer". Rule 142(a), Tax Court Rules of
Practice and Procedure.
2Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
3Respondent concedes the addition to tax for fraud against petitioner
Vivian Burke for each of the years in issue. See sec. 6653(b)(4).
4As an alternative to the additions to tax for fraud, respondent asserts
additions to tax for negligence against petitioners for each of the taxable
years in issue. Because of our resolution of the fraud issue, infra, it is
unnecessary for us to consider respondent's alternative arguments.
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Last modified: May 25, 2011