-43-
without the benefit of any deductions. On October 7, 1993, the
taxpayer submitted Federal income tax returns for 1987 through
1991; apparently, these returns were never filed by the
Commissioner. The returns reported net losses from rental
properties located in the United States. On January 13, 1994,
the Commissioner issued a notice of deficiency to the taxpayer
for 1987 through 1991. The Commissioner determined in the notice
of deficiency that the taxpayer was liable for deficiencies and
additions to tax as ascertained from the substitute returns.
Pursuant to section 874(a), the Commissioner did not allow the
taxpayer to deduct any of his related expenses.13
This Court upheld the Commissioner’s determination, deciding
that a nonresident alien may not avoid the sanctions of section
874(a) by filing returns after the Commissioner has prepared
returns for the taxpayer, but before the Commissioner has issued
a notice of deficiency. See Espinosa v. Commissioner, supra at
150, 158. The Court noted that the Commissioner before preparing
the substitute returns had informed the taxpayer that he had not
filed a Federal income tax return and had given him a reasonable
time to do so. Id. at 157.
13 Although the Commissioner in the notice of deficiency had
characterized the taxpayer’s rental income as effectively
connected income, the Court was careful to note that neither
party in that case had questioned whether the taxpayer had made a
valid election to support that characterization. See Espinosa v.
Commissioner, 107 T.C. 146, 150 (1996).
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