- 13 -
information returns. Therefore, the rationale for treating the
returns of passthrough entities as adjuncts to an individual’s
returns is not present in the case of a subchapter C
corporation’s income tax return. Respondent was not required to
examine the returns of ERG, a subchapter C corporation, to
determine whether the Bensons disclosed items of gross income.
B. Disclosures on Returns Were Not Adequate to Apprise the
Secretary of the Nature and Amount of Omitted Income
1. Royalties and Engineering Services
The Bensons argue that the returns of NPI disclosed royalty
and engineering service payments from ERG that we previously
found to be constructive dividends to the Bensons. Quoting
Colony v. Commissioner, 357 U.S. 28 (1958), the Bensons argue
that respondent had “no ‘special disadvantage in detecting
errors’” because these items were disclosed on the corporate
returns. Respondent argues that the returns do not adequately
disclose the transfers and mischaracterized the transfers.
A misleading disclosure on a return is insufficient to
apprise the Commissioner of the nature and amount of an item for
purposes of section 6501(e)(1)(A)(ii). Estate of Fry v.
Commissioner, 88 T.C. 1020 (1987). In our prior opinion, we
stated:
On or about March 10, 1990, Burton executed as
president of both NPI and ERG, a document entitled
“Agreement of Sale and Exclusive License” (exclusive
license agreement). The document had a retroactive
effective date of July 1, 1987, and a 40-year term.
Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 NextLast modified: May 25, 2011