James S Sparkman - Page 27

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             In sum, we conclude and hold that Mercury Solar PTO lacked               
        economic substance and should be disregarded for Federal tax                  
        purposes and its income attributed to Sparkman.29                             
        III.  Unreported Income From HECO Rebates                                     
             The parties stipulated that for 1999 HECO issued Mercury                 
        Solar PTO a Form 1099 showing nonemployee compensation of                     
        $195,275.  At trial and on brief, petitioners seek to repudiate               
        this stipulation, on the ground that respondent has not produced a            
        copy of the Form 1099.  Without disputing that HECO made payments             
        of $195,275 as part of a rebate program, petitioners contend that             
        only $81,921 of those payments was made to Mercury Solar PTO,                 
        which duly reported that amount on its 1999 Federal income tax                
        return.  Petitioners contend that the remaining amount of the HECO            



               29 For the first time on reply brief, petitioners argue that           
          if Mercury Solar PTO is to be disregarded as a separate entity,             
          then it “should be recognized as not separate from HEH and not              
          Sparkman, as the Respondent contends.”  We construe petitioners’            
          syntactically challenged argument to be that if Mercury Solar PTO           
          is disregarded, its income should be attributed to HEH rather               
          than to Sparkman.  Because petitioners did not raise this                   
          argument or position in their pretrial memorandum, at trial, or             
          on opening brief, respondent has had no opportunity to address              
          petitioners’ position.  We find petitioners’ attempt to raise               
          this argument to be untimely.  See Taiyo Haw. Co. v.                        
          Commissioner, 108 T.C. 590, 607 (1997).  But even if we were to             
          consider petitioners’ argument, it would be unavailing.  On the             
          basis of all the evidence in the record, we are unpersuaded that            
          Sparkman’s transfer of the Mercury Solar business to HEH had any            
          more economic reality than the subsequent retransfer to Mercury             
          Solar PTO.  Furthermore, on the basis of all the evidence, we               
          have found that Sparkman, not HEH, held all the beneficial                  
          interests in Mercury Solar PTO during the years at issue.                   





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