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accuracy-related penalties in Cascade Designs, Inc.'s (Cascade or
the corporation) Federal income tax in the following amounts:
Accuracy-Related Penalty
Year Deficiency Sec. 6662(a)
1992 $592,921 $118,584
1993 162,240 32,448
1994 182,378 36,476
1995 196,621 39,324
1996 90,564 18,113
Respondent determined deficiencies and accuracy-related
penalties in James M. and Jane I. Lea's (the Leas) Federal income
tax in the following amounts:
Accuracy-Related Penalty
Year Deficiency Sec. 6662(a)
1993 $62,355 $12,471
1994 65,462 13,092
1995 56,326 11,265
1996 28,640 5,728
These cases were consolidated for trial, briefing, and
opinion by order of this Court dated November 18, 1998.
The issues for decision are: (1) Whether the payments
Cascade made to James M. Lea (Lea) during the years at issue were
expenditures for the purchase of certain patents and, therefore,
deductible as patent amortization expenses. We find they are.
(2) Whether the Leas may report the payments as capital gain
income under section 1235.1 Respondent's position on this issue
1Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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