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section 6651(a)(1)1 addition to tax, and a $16,366 section 6662
penalty.
The issues for our consideration are: (1) Whether
litigation costs paid by petitioner on behalf of clients and then
reimbursed to petitioner are deductible as ordinary and necessary
business expenses or whether such payments are in the nature of
nondeductible advances or loans; (2) whether respondent’s
adjustment to petitioner’s reporting of litigation costs triggers
a section 481 adjustment; (3) whether petitioner’s 1990 and 1991
net operating losses may be carried forward to the 1993 tax year,
without first being applied to years prior to 1990 and 1991; and
(4) whether petitioner is liable for an accuracy-related penalty
under section 6662(a).2 For convenience and continuity, separate
fact findings and opinion portions are set forth for each issue
decided by the Court.3
1 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year under
consideration, and Rule references are to this Court’s Rules of
Practice and Procedure.
2 Petitioner conceded at trial that if the Court determined
that there was a deficiency, then it would be liable for the sec.
6651(a)(1) addition to tax for filing a delinquent return.
3 The parties’ stipulated facts and exhibits are
incorporated by this reference.
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Last modified: May 25, 2011