Steven J. and Michele D. Scagliotta - Page 18

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          debt arising out of a trade or business activity when the debt                     
          was clearly related to property held for the production of                         
          income.                                                                            
                At trial, petitioner contended he was not negligent or in                    
          disregard of rules or regulations for 1990 in claiming he was                      
          engaged in a trade or business activity because he relied on a                     
          position that was taken by the Internal Revenue Service (IRS) in                   
          the audit of his 1983 tax return.  For 1983, petitioner had                        
          reported a trade or business activity based on a Schedule C filed                  
          with his return, and the IRS did not challenge that his activity                   
          was a trade or business.  Petitioner did not submit to the Court                   
          a copy of his 1983 return or the IRS audit report for his 1983                     
          tax year but submitted a "Statement of Change To Your Account",                    
          dated April 7, 1986, which he received from the IRS that                           
          indicated an increase in tax for 1983 in the amount of $399 and                    
          interest charged of $96.23, for a total amount of $455.23, which                   
          the statement acknowledged as having been paid.  Petitioner's                      
          claim of reliance for purposes of the negligence penalty is not                    
          substantiated.  The record of this case indicates that the                         
          principal nature of petitioner's trade or business during 1983                     
          may well have been the commodity trading strategy and manual that                  
          petitioner was promoting at that time.  Petitioner acquired the                    
          Bridgewater, New Jersey, property sometime during 1983 and first                   
          sought a variance to build a three-family house on the property                    





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