                        T.C. Memo. 1998-39



                      UNITED STATES TAX COURT



         DAVID DOBRICH AND NAOMI DOBRICH, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 3832-95, 7382-96.       Filed January 29, 1998.



     John M. Youngquist and Donald L. Feurzeig, for petitioners.

     Daniel J. Parent, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION

     GERBER, Judge:   The Court filed a Memorandum Findings of

Fact and Opinion in this case (T.C. Memo. 1997-477) on

October 20, 1997, stating that a decision would be entered for

petitioners for 1990 (docket No. 7382-96) and pursuant to Rule
                               - 2 -


1551 as to 1989 (docket No. 3832-95).    Respondent filed an

unagreed computation for the 1989 taxable year that would result

in a $1,032,409 income tax deficiency and a $392,873.13

overpayment after considering payments made after issuance of the

notice of deficiency.   Respondent's computation for 1989 would

also result in a $774,307 fraud penalty under section 6663.    This

opinion addresses the parties' controversy over the computation

of the decision(s) to be entered.

     Respondent had determined deficiencies in petitioners' 1989

and 1990 Federal income tax in the amounts of $1,111,292 and

$1,111,320, respectively, and section 6663(a) civil fraud

penalties for 1989 and 1990 of $833,469 and $833,490,

respectively.   Respondent determined the income tax deficiency

and penalty in the alternative for 1989 or 1990.

     The issues we considered were:     (1) Whether petitioners may

defer recognition of gain from the disposition of certain real

property under section 1031, (2) if the transaction does not

qualify for section 1031 exchange, whether petitioners are

entitled to report the gain in 1990 under the installment sale

method, and (3) whether petitioners are liable for a fraud

penalty under section 6663.



     1
        Unless otherwise indicated, Rule references are to the
Tax Court Rules of Practice and Procedure, and section references
are to the Internal Revenue Code for the years in issue.
                               - 3 -


     In T.C. Memo. 1997-477, we decided that petitioners were not

entitled to defer recognition of gain under section 1031, the

gain was recognizable in 1989, petitioners did not qualify for

installment sales treatment to place income in 1990, and

petitioners were liable for the section 6663 fraud penalty for

1989.

     Under Rule 155(a), parties are required to submit

"computations pursuant to the Court's determination of the

issues, showing the correct amount of the deficiency, liability,

or overpayment to be entered as the decision."   Parties are not

permitted to raise new issues or   matters in connection with the

Rule 155 computations.   Bankers Pocahontas Coal Co. v. Burnet,

287 U.S. 308 (1932).   The starting point for the computation is

the statutory notice of deficiency from which the parties compute

the redetermined deficiency based upon matters agreed by the

parties or ruled upon by the Court.    Home Group, Inc. v.

Commissioner, 91 T.C. 265, 269 (1988), affd. 875 F.2d 377 (2d

Cir. 1989); Whitham v. Commissioner, a Memorandum Opinion of this

Court dated Jan. 30, 1953.

     Petitioners, in their proffered computation, filed

December 11, 1997, objected to respondent's 1989 computation on

several grounds.   First, because we found that petitioners'

transactions were sales and not like-kind exchanges, they contend

that the $3,969,000 of sales proceeds used by respondent should
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have been $3,962,764 to reflect $6,236 in selling costs

documented in the record.   If we adopt petitioners' approach, the

1989 income tax deficiency would be $1,030,663.   The reduction of

the income tax deficiency also causes a reduction in the section

6663 penalty from $774,307 to $772,997.   Support for petitioners'

entitlement to a $6,236 reduction is adequately documented in the

record and is an integral part of our finding that the

transactions in question do not qualify under section 1031.

After considering the parties' proposed computations, our

opinion, and the record in these consolidated cases, we hold that

petitioners' approach to the computation for the 1989 deficiency

and penalty is correct.

     In addition, petitioners objected that the $392,873.13

overpayment for 1989 after considering post-notice payments was

understated in that petitioners' early December 1997 payment in

the amount of $1,323,723 was not considered in respondent's

computation.   Following a telephone conference between the Court

and the parties, respondent's counsel determined that the

$1,323,723 payment had been made by petitioners after

respondent's computation had been submitted to the Court and that

the overpayment after considering post-notice payments should be

increased accordingly.

     With respect to the 1990 taxable year, the Court did not

request a computation under Rule 155.   Respondent had determined
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that the transactions in question were taxable, alternatively,

for 1989 or 1990.   We decided that 1989 was the year in which the

income was to be included, and no computation under Rule 155 was

required for 1990 because of our understanding that petitioners

would have no deficiency or overpayment for the 1990 year.

Petitioners, however, proffered a computation for entry of

decision for 1990 reflecting a $20,831 overpayment, which they

claim is attributable to additional depreciation that they could

have claimed on the acquired properties on the premise that they

were purchased, rather than exchanged.   Petitioners point out

that they were permitted to amend their petition for the 1990

year to claim $75,012 of additional depreciation.   Respondent, in

turn, answered petitioners' allegation in the amendment to the

1990 petition by admitting that petitioners would be entitled to

additional depreciation if the Court determines that "the

transaction is taxable in 1990".   Respondent, however, denied,

for lack of sufficient information, that petitioners were

entitled to the amount they had alleged.   Petitioners also

contend that we held that the period for assessment would be open

for the 1990 year due to our finding of fraud for 1990.   Under

these circumstances, petitioners seek an overpayment for 1990,

rather than a "no deficiency, no overpayment" decision.

     We find that petitioners are not entitled to an overpayment

for their 1990 taxable year.   Their amended petition for 1990
                               - 6 -


sought the $75,012 of additional depreciation only "If the Court

concludes that the transaction is taxable in 1990".

Additionally, petitioners did not seek an overpayment or refund

in their petition, or the amendment thereto, or at any time,

until after the Court's issuance of the opinion and request for

the computations under Rule 155 for the 1989 year.

     Petitioners rely on note 3 in T.C. Memo. 1997-477 in their

attempt to show that the 1990 year remained open for their claim

of a refund.   That footnote contained the following commentary:

          Petitioners had raised the defense that the period
     for assessment had expired when respondent issued the
     notice of deficiency for the 1990 year. The 1990 year
     comes into play in the context of this case if
     petitioners are entitled to installment sale treatment.
     In that event respondent would also have the burden of
     proving that an exception to the general period of
     limitations applies. Stratton v. Commissioner, 54 T.C.
     255, 289 (1970). That question is mooted by our
     holding that petitioners are not entitled to
     installment reporting. Even if petitioners had been
     successful on the installment reporting issue,
     respondent has carried the burden of showing a
     fraudulent return, and, therefore, the period for
     assessment would not have expired prior to issuance of
     the deficiency notice. Sec. 6501(c)(1).

The footnote is dicta in that its purpose is to consider whether

the overall result in these cases would have been different if we

found that the installment sales method could have been used.   It

was not the holding of our opinion and, accordingly, not a

predicate for petitioners' argument that the 1990 year is open.

There was no need to make a holding on that issue because the

sole issue raised for 1990 was mooted by our finding that
                                 - 7 -


petitioners were required to include the income from real

property sales for 1989.

     Accordingly, petitioners have not shown that the question of

an overpayment for 1990 was raised and/or in issue prior to the

submission of the Rule 155 computation.       Petitioners' argument

that the limitations period is still open within which a refund

for 1990 could be claimed falls short of the statutory

requirements in several obvious respects.       Petitioners have not

shown that they have met the requirements of sections 6501, 6511,

or 6512.   We therefore hold that petitioners are not entitled to

an overpayment for 1990.

     To reflect the foregoing,

                                         Decisions will be entered in

                                 accord with this opinion in docket

                                 No. 3832-95 and for petitioners in

                                 docket No. 7382-96.
