Peter S. Pau and Susanna H. Pau - Page 22

                                       - 22 -                                         
          that he failed to report the income, not to evade tax, but                  
          because he viewed the payment as a short-term capital gain which            
          he intended to offset by capital losses from his interest in                
          Regent when such losses were realized.  The Court discounts this            
          explanation as an afterthought.  See Gajewski v. Commissioner, 67           
          T.C. at 202.  Petitioner had at least two clear opportunities to            
          offer this explanation to Clement before petitioners retained               
          counsel, yet he said nothing.                                               
               Even if we did not regard petitioner's explanation as a                
          recent fabrication, we find highly improbable his testimony that            
          he viewed the income received from Sanrio as capital, rather than           
          ordinary, in nature.  Although his wife usually engaged in                  
          brokerage sales for Sand Hill, petitioner was familiar with real            
          estate practices.  The evidence overwhelmingly suggests that                
          Sanrio viewed petitioner merely as an agent, and that petitioner            
          knew of his role as intermediary.  Petitioner wrote a letter to             
          Sanrio before the Agreement was signed describing his fee.                  
          Moreover, Sanrio reimbursed petitioner for his out-of-pocket                
          expenses.  Petitioner signed the agreement, rather than Sanrio,             
          due to the seller's antipathy toward Sanrio.  Cf. Solomon v.                
          Commissioner, 732 F.2d at 1461.  Consequently, petitioner must              
          have known that the $840,000 was a commission and therefore                 
          ordinary income against which, he was aware, capital losses could           
          not be applied.  His explanation is incongruous with these                  
          circumstances.                                                              




Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011