- 27 -
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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