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with another secured promissory note in which First Management
promised to pay petitioners the same amount of consideration, on
the same terms, for their shares. When this new note was paid
off in 1996, Geoffrey reported no gain from the sale on his 1996
Federal income tax return. Peter did not file a 1996 Federal
income tax return.
II. Notice of Deficiency and Prior Proceedings
On April 13, 1999, respondent issued a notice of deficiency
to Geoffrey for 1996, determining a deficiency of $1,952,470, an
addition to tax under section 6651(a)(1) of $477,503.25, and an
accuracy-related penalty under section 6662(a) of $389,466.40.
Respondent determined that the payment on the note in 1996 made
the remaining amount of capital gain, $6,381,649, taxable in
1996. On July 9, 1999, Geoffrey authorized Jacob to file a
petition with this Court on his behalf as to 1996.
On December 20, 1999, respondent issued a similar notice of
deficiency to Peter for 1996, determining a deficiency of
$1,965,013, an addition to tax under section 6651(a)(1) of
$478,503, and an addition to tax under section 6654 of $19,834.
That notice determined that the payment in 1996 triggered
recognition of capital gain of $6,156,266. On March 20, 2000,
Peter authorized Jacob to file a petition with this Court on his
behalf as to 1996.
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Last modified: May 25, 2011