                                     THEODORE B. GOULD AND ESTATE OF HELEN C. GOULD, DE-
                                      CEASED, THEODORE B. GOULD, EXECUTOR,1 PETITIONERS v.
                                      COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
                                               Docket Nos.          5887–07L, 4592–08,           Filed November 26, 2012.
                                                                   11606–10L.

                                                  In 1984, P–H and several entities in which he owned
                                               interests filed voluntary petitions in ch. 11 bankruptcy. The
                                               bankruptcy court established a liquidating trust to which all
                                               assets of the bankruptcy estates were transferred. The liqui-
                                               dating trustee remitted payments to the Internal Revenue
                                               Service (IRS) in satisfaction of the income tax liabilities of the
                                               debtors, including P–H’s bankruptcy estate, for tax years
                                               before those at issue herein. On Ps’ individual joint 1995,
                                               amended 1995, and 1996–2002 Federal income tax returns, Ps
                                               reported net operating loss (NOL) deductions and estimated
                                               tax payments belonging to the liquidating trust and one of the
                                               debtor entities, arguing with respect to the trust that they are
                                               so entitled because P–H is the grantor of the liquidating trust
                                               pursuant to I.R.C. secs. 671–677. On each of their 1995–2002
                                               tax returns, Ps also claimed capital loss deductions. In addi-
                                               tion, they reported, on their joint 1995, amended 1995, and
                                               each of their 1996–2003 and 2005–07 tax returns, a self-
                                               employment tax liability but did not remit payment. R deter-
                                               mined deficiencies in Ps’ 1995–2002 income tax and imposed
                                               fraud penalties under I.R.C. sec. 6663(a). The three-year
                                               period of limitations on assessment under I.R.C. sec. 6501(a)
                                               had expired for 1995–2001 before R issued the notice of defi-
                                               ciency. R alleges that the notice was timely issued as to those
                                               years because Ps filed false or fraudulent returns. See I.R.C.
                                               sec. 6501(c). For 2002, for which the period of limitations on
                                               assessment remained open, R alleges that P–H is liable for
                                               the I.R.C. sec. 6663(a) civil fraud penalty, or alternatively,
                                               that Ps are liable for the I.R.C. sec. 6662(a) accuracy-related
                                               penalty. R determined to proceed by levy to collect Ps’ 1995,
                                               1999–2003, and 2005–07 self-employment tax liabilities and

                                       1 These cases have been consolidated for purposes of opinion. Docket Nos. 5887–07L and 4592–

                                     08 were consolidated for purposes of trial, briefing, and opinion. Docket No. 11606–10L, which
                                     was submitted fully stipulated, proceeded separately for purposes of hearing and briefing. We
                                     subsequently consolidated that case with docket Nos. 5887–07L and 4592–08 for purposes of this
                                     Opinion.


                                     418




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                                     (418)                           GOULD v. COMMISSIONER                                       419


                                               filed a notice of Federal tax lien with respect to those liabil-
                                               ities for 2000–2003 and 2005–07. Ps filed petitions for review
                                               of the determination pursuant to I.R.C. sec. 6330.
                                                  1. Held: For all audit years, P–H is not the grantor of the
                                               liquidating trust; the trust was not created and funded gratu-
                                               itously on P–H’s behalf; he did not acquire an interest in the
                                               trust from his bankruptcy estate upon its termination; nor is
                                               he the owner because trust income was used to discharge his
                                               indebtedness.
                                                  2. Held, further, for 1995–2002, Ps are not entitled to NOL
                                               deductions attributable to either P–H’s bankruptcy estate or
                                               the liquidating trust.
                                                  3. Held, further, for 1995–2002, for failure to substantiate,
                                               Ps are not entitled to capital loss deductions.
                                                  4. Held, further, Ps’ 1995–2002 returns were not fraudulent.
                                                  5. Held, further, because those returns were not fraudulent,
                                               R’s determinations and adjustments regarding 1995–2001 are
                                               barred.
                                                  6. Held, further, because the liquidating trust is not a
                                               grantor trust with respect to P–H, Ps are not entitled to credit
                                               or refund of claimed overpayments of tax on income attrib-
                                               utable to property held by the trust.
                                                  7. Held, further, this Court lacks jurisdiction to determine
                                               whether R properly abated assessments of income tax against
                                               the liquidating trust for tax years 1997 and 1998.
                                                  8. Held, further, Ps are liable for the I.R.C. sec. 6662(a)
                                               accuracy-related penalty for 2002.
                                                  9. Held, further, Ps’ claims to credits against their 1995,
                                               1999–2003, and 2005–07 self-employment tax liabilities are
                                               time barred.
                                                  10. Held, further, R did not abuse his discretion in denying
                                               Ps a face-to-face collection due process hearing for 2000–2003
                                               and 2005–07.

                                        Samuel Charles Ullman and W. Patrick Hancock, for peti-
                                     tioners in docket Nos. 5887–07L and 4592–08.
                                        Theodore B. Gould, pro se and for the Estate of Helen C.
                                     Gould in docket No. 11606–10L.
                                        William John Gregg and Erin R. Hines, for respondent in
                                     docket Nos. 5887–07L and 4592–08.
                                        William John Gregg, for respondent in docket No. 11606–
                                     10L.




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                                     420                  139 UNITED STATES TAX COURT REPORTS                                                    (418)


                                                                                    CONTENTS

                                     FINDINGS OF FACT .............................................................................              423
                                     OPINION .................................................................................................   431
                                     I. Deficiency Proceeding Regarding Petitioners’ 1995–2002 Tax
                                            Liabilities ......................................................................................   431
                                       A. Period of Limitations ...................................................................              431
                                          1. Introduction ...............................................................................        431
                                          2. Underpayment of Tax ...............................................................                 431
                                            a. NOL Carryovers ....................................................................               432
                                              (1) The MCLT Is Not a Grantor Trust .................................                              432
                                                (a) Collateral Estoppel .......................................................                  433
                                                (b) Grantor Trust Rules .....................................................                    435
                                              (2) Petitioners Are Not Entitled to NOL Carryovers of
                                                      Petitioner’s Bankruptcy Estate Upon Its Termina-
                                                      tion ..................................................................................    440
                                            b. Capital Loss Deductions .......................................................                   443
                                            c. Conclusion ..............................................................................         445
                                          3. Fraudulent Intent .....................................................................             446
                                            a. Understatement of Income ...................................................                      446
                                            b. Inadequate Maintenance of Records ....................................                            447
                                            c. Failure To Cooperate With Tax Authorities ........................                                448
                                            d. Intent To Mislead ..................................................................              448
                                            e. Filing False Documents ........................................................                   449
                                            f. Implausible or Inconsistent Explanations of Behavior .......                                      450
                                            g. Conclusion ..............................................................................         452
                                       B. Deficiencies in Tax .......................................................................            453
                                          1. Introduction ...............................................................................        453
                                          2. Disallowed Deductions .............................................................                 453
                                          3. Credit or Refund of Overpayment of Tax ...............................                              453
                                          4. Abatement of Assessments .......................................................                    455
                                       C.     Imposition of the Accuracy-Related Penalty ..........................                              456
                                          1. Introduction ...............................................................................        456
                                          2. Substantial Understatement of Income Tax ...........................                                456
                                          3. Section 6664(c) Reasonable Cause Defense ............................                               459
                                          4. Conclusion .................................................................................        462
                                     II.     Collection Proceeding Regarding Petitioners’ 1995, 1999–2003,
                                              and 2005–07 Tax Liabilities ........................................................ 462
                                     III.     Conclusion ...................................................................................... 466
                                     APPENDIX .............................................................................................. 467




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                                     (418)                           GOULD v. COMMISSIONER                                       421


                                       HALPERN, Judge: By a notice of deficiency, respondent
                                     determined deficiencies in, and penalties with respect to,
                                     Theodore B. Gould and Helen C. Gould’s (petitioners’ 2) Fed-
                                     eral income tax as follows: 3

                                                                                                                 Penalty
                                                        Year                     Deficiency                    sec. 6663(a)
                                                        1995                        $41,218                       $30,914
                                                        1996                          8,934                         6,701
                                                        1997                          4,293                         3,220
                                                        1998                          5,246                         3,935
                                                        1999                         19,155                        14,366
                                                        2000                        113,064                        84,798
                                                        2001                         23,679                        17,759
                                                        2002                         27,732                        20,799

                                     On brief, respondent concedes an adjustment made in the
                                     notice of deficiency to petitioners’ 1995 taxable income for an
                                     unreported $12,750 State income tax refund. His concession
                                     reduces the deficiency and penalty amounts for that year to
                                     $36,628 and $27,471, respectively.
                                        By two Notices of Determination Concerning Collection
                                     Action(s) Under Section 6320 and/or 6330, respondent’s
                                     Appeals Office (Appeals) sustained a proposed levy to collect
                                     petitioners’ assessed but unpaid self-employment taxes, pen-
                                     alties, and interest for 1995, 1996, and 1999. We subse-
                                     quently dismissed the levy action as to 1996 as moot. 4 By a
                                     third Notice of Determination Concerning Collection
                                     Action(s) Under Section 6320 and/or 6330, Appeals sustained
                                     (1) the filing of a notice of Federal tax lien relating to peti-
                                     tioners’ assessed but unpaid self-employment taxes for 2000,
                                     2001, 2002, 2003, 2005, 2006, and 2007 and (2) a proposed
                                     levy to collect petitioners’ assessed but unpaid self-employ-
                                     ment taxes, penalties, and interest for those years.
                                        After respondent’s concession that Mrs. Gould is not liable
                                     for the section 6663(a) civil fraud penalty, the issues for deci-
                                        2 Mrs. Gould died after the first of these consolidated cases commenced. For convenience, we

                                     use the term ‘‘petitioners’’ to refer to Mr. and Mrs. Gould, and we use the term ‘‘petitioner’’
                                     sometimes to refer to Theodore B. Gould (Mr. Gould).
                                        3 Unless otherwise stated, section references are to the Internal Revenue Code in effect for

                                     the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
                                     We round all amounts to the nearest dollar.
                                        4 We did so on the basis of respondent’s representation that, because of offsets of overpay-

                                     ments from other taxable years, no outstanding assessed liability and no unassessed accrued
                                     liability exist for 1996 and he will take no further collection action for that year.




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                                     422                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     sion are: (1) whether the periods of limitations for assessing
                                     and collecting the proposed deficiencies and penalties remain
                                     open as to taxable years 1995–2001, 5 and if so, whether (2)
                                     petitioners are entitled to a net operating loss NOL deduction
                                     for each of those years, (3) petitioners are entitled to a cap-
                                     ital loss deduction for each of those years, (4) petitioners are
                                     entitled to a credit or a refund of an alleged overpayment for
                                     each of those years, (5) respondent properly abated certain
                                     tax assessments, 6 and (6) Mr. Gould is liable for the civil
                                     fraud penalty pursuant to section 6663(a) for each of those
                                     years. Because we decide for petitioners with respect to issue
                                     (1), respondent is time barred from raising issues (2) through
                                     (6) as to 1995–2001, and we must decide those issues in peti-
                                     tioners’ favor.
                                        Respondent has also raised issues (2) through (6) as to tax-
                                     able year 2002, for which, because of petitioners’ consent to
                                     extend the period of limitations, respondent may still assess
                                     and collect tax. We must, therefore, decide issues (2) through
                                     (6) for that year. If we determine that Mr. Gould is not liable
                                     for the section 6663(a) penalty for that year, we must deter-
                                     mine whether petitioners are liable for the section 6662(a)
                                     accuracy-related penalty. 7
                                        Finally, we decide whether (1) to sustain the filing of the
                                     notice of Federal tax lien relating to petitioners’ assessed
                                     2000–2003 and 2005–07 self-employment taxes, (2)
                                     respondent may proceed by levy to collect petitioners’ 1995,
                                     1999–2003, and 2005–07 assessed self-employment tax liabil-
                                     ities, penalties, and interest, and (3) respondent’s Appeals
                                     Office improperly denied petitioners’ request for a face-to-face
                                     collection due process hearing for tax years 2000–2003 and
                                     2005–07.
                                       5 The general three-year limitations period on assessments provided by sec. 6501(a) had ex-

                                     pired for taxable years 1995–2001 by November 30, 2007, the notice of deficiency’s date of
                                     issuance. The notice of deficiency was timely for 2002 because petitioners had consented to ex-
                                     tend the limitations period for that year.
                                       6 Petitioners did not by pleading or motion raise that issue. See Rules 34(b)(4), 37(b); Estate

                                     of Mandels v. Commissioner, 64 T.C. 61, 73 (1975) (this Court ordinarily will not consider issues
                                     that have not been pleaded). Respondent has not objected to petitioners’ attempt to try this
                                     issue, and both parties address the issue in their opening and answering briefs. Accordingly,
                                     we treat petitioners’ claim as having been tried by consent of the parties and thus raised by
                                     the pleadings. See Rule 41(b).
                                       7 There are also certain computational adjustments that follow from the adjustments at issue,

                                     but they are not in controversy, and we need not address them.




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                                     (418)                           GOULD v. COMMISSIONER                                         423


                                                                         FINDINGS OF FACT

                                       These cases involve principally questions of law, not of
                                     fact. We set forth the facts below in order to frame those
                                     questions at issue herein.
                                     Background
                                        Mr. and Mrs. Gould were married during 1995–2003 and
                                     2005–07 (years in issue). At the time they filed the petitions,
                                     petitioners lived in Virginia. 8 Mr. Gould graduated from
                                     Oxford University with a master of arts degree in economics.
                                        Petitioner formed, and held interests in, the following enti-
                                     ties: Holywell Corp. (Holywell), the Miami Center Corp.
                                     (MCC), the Miami Center Limited Partnership (MCLP), Chopin
                                     Associates (Chopin), and the Miami Center Joint Venture
                                     (MCJV), 9 a Florida general partnership. We have attached
                                     hereto as an appendix a diagram indicating, as of January
                                     1, 1983, the relationships between petitioner and the above-
                                     mentioned entities.
                                     Bankruptcy Proceeding and the Miami Center Liquidating
                                     Trust
                                        Chopin and MCLP borrowed money from the Bank of New
                                     York (BNY) to develop the Miami Center, a hotel and office
                                     building complex to be built in Miami, Florida. They
                                     defaulted on the loans, and on August 22, 1984, petitioner,
                                     Holywell, MCC, MCLP, and Chopin (sometimes debtors) filed
                                     separate petitions in bankruptcy with the U.S. Bankruptcy
                                     Court for the Southern District of Florida (bankruptcy court).
                                     The bankruptcy petitions were filed pursuant to chapter 11
                                     of the Bankruptcy Code, and the debtors represented their
                                     own bankruptcy estates as debtors in possession. 10
                                        On August 8, 1985, the bankruptcy court confirmed an
                                     amended consolidated plan of reorganization (plan). The plan
                                     provided, among other things, for the substantive consolida-
                                     tion of the debtors’ bankruptcy estates and for the formation
                                       8 Mrs. Gould died before the filing of the petition in docket No. 11606–10L. Mr. Gould, as ex-

                                     ecutor of Mrs. Gould’s estate, resided in Virginia when he filed the petition in that proceeding.
                                       9 Petitioner formed MCJV with Olympia & York Florida Equity Corp., a Florida corporation,

                                     with each holding a 50% interest in MCJV.
                                       10 A debtor who takes on the role of a ‘‘debtor in possession’’ administers the estate’s property

                                     including the retention of possession and control of its business through the bankruptcy estate.
                                     11 U.S.C. sec. 1101(1) (2006).




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                                     424                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     of a liquidating trust, the Miami Center Liquidating Trust
                                     (MCLT), to which all assets of those estates would be trans-
                                     ferred. The assets included, primarily, the Miami Center and
                                     the Washington proceeds. 11 The plan provided that, on its
                                     effective date, ‘‘all right, title and interest of the Debtors in
                                     and to the Trust property, including Miami Center, shall vest
                                     in the Trustee’’ and the trustee shall liquidate and distribute
                                     all trust property to the bankruptcy estates’ creditors. The
                                     plan also provided that, after the payment or resolution of all
                                     creditor claims, all remaining MCLT assets would revert to
                                     the debtors. The plan was silent as to the trustee’s obligation
                                     to file Federal or State tax returns or to pay Federal and
                                     State income taxes on income attributable to the property it
                                     had received.
                                        On August 12, 1985, the bankruptcy court appointed as liq-
                                     uidating trustee Fred Stanton Smith (Mr. Smith or trustee).
                                     On October 10, 1985, the effective date of the plan, all assets
                                     of the debtors’ bankruptcy estates were transferred to the
                                     MCLT, and Mr. Smith sold the Miami Center to BNY’s
                                     nominee. Mr. Smith did not establish a reserve from which
                                     to pay taxes due on the sale of the Miami Center.
                                     Federal Tax Returns and Tax Liabilities
                                        Holywell (the common parent of an affiliated group of cor-
                                     porations) made a consolidated return of income for its fiscal
                                     year ended July 31, 1985, and it asked Mr. Smith to pay the
                                     income tax due on the gain from the sale of the Washington
                                     properties. Holywell did not make a return of income for its
                                     fiscal year ended July 31, 1986; income for that year included
                                     gain from the sale of the Miami Center. On December 28,
                                     1987, Mr. Smith brought suit in the bankruptcy court
                                     against the U.S. Government, BNY, 12 and the debtors for a
                                     declaration of his (the trustee’s) obligation to file Federal tax
                                     returns for the debtors (for petitioner, his bankruptcy estate)
                                     and to pay income taxes due.
                                       11 The Washington proceeds totaled $32,422,799 and resulted from a sale, which closed in De-

                                     cember 1984, of real and personal property (Washington properties) held by entities not party
                                     to the bankruptcy proceeding but in which petitioner (directly or indirectly) held interests. See
                                     Smith v. United States (In re Holywell Corp.), 85 B.R. 898 (Bankr. S.D. Fla. 1988), aff ’d, 911
                                     F.2d 1539 (11th Cir. 1990), rev’d, 503 U.S. 47 (1992).
                                       12 Mr. Smith brought suit against BNY because he contended that, if the MCLT is liable to

                                     pay taxes due on the sale of the Washington properties and the Miami Center, then BNY should
                                     be held responsible for all such payment.




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                                     (418)                           GOULD v. COMMISSIONER                                       425


                                       The bankruptcy court held that Mr. Smith was not respon-
                                     sible to file Federal income tax returns or to pay taxes owing.
                                     Smith v. United States (In re Holywell Corp.), 85 B.R. 898,
                                     902 (Bankr. S.D. Fla. 1988), aff ’d, 911 F.2d 1539 (11th Cir.
                                     1990), rev’d, 503 U.S. 47 (1992). On appeal, however, the
                                     U.S. Supreme Court held that Mr. Smith had to file tax
                                     returns and pay taxes due on income attributable to the
                                     property the MCLT had received from the debtors’ estates.
                                     Holywell Corp., 503 U.S. at 54–55. With respect to what the
                                     Court described as the corporate debtors, it held that the
                                     trustee was responsible to make income tax returns as
                                     assignee of the those debtors under section 6012(b)(3). Id. at
                                     53. With respect to petitioner’s bankruptcy estate, the Court
                                     determined that, upon confirmation of the plan, a newly
                                     separate and distinct trust (the MCLT) was created and all of
                                     the assets of petitioner’s bankruptcy estate were vested in
                                     the trustee. Because Mr. Smith was a fiduciary of the trust,
                                     which held the property of petitioner’s bankruptcy estate,
                                     Mr. Smith (as trustee) was responsible for paying the taxes
                                     on income attributable to the property and was also required
                                     to file Federal income tax returns. Id. at 54. The case was
                                     eventually remanded to the bankruptcy court to determine
                                     the amounts of the tax liabilities of the corporate debtors,
                                     petitioner’s bankruptcy estate, and the MCLT (taxpayers).
                                       Notwithstanding the Supreme Court’s ruling, Mr. Smith
                                     did not file timely Federal tax returns for the taxpayers. As
                                     a result, respondent began an examination of each of the tax-
                                     payer’s liabilities for the relevant years. One of respondent’s
                                     revenue agents issued separate revenue agent’s reports (RAR)
                                     with respect to Holywell and subsidiaries (for fiscal years
                                     ended July 31, 1986–91), the MCLT (for taxable years 1985–
                                     91), and petitioner’s bankruptcy estate. The RAR with respect
                                     to petitioner’s bankruptcy estate, which related to taxable
                                     years ending December 31, 1984, and October 10, 1985,
                                     stated, among other things: ‘‘There is no carryover to the
                                     debtor of any net operating loss from the [bankruptcy]
                                     estate.’’
                                     Payments Remitted to IRS
                                       In early 1992, Mr. Smith made payments of $2,920,000
                                     and $80,000 to the IRS on behalf of the MCLT. On April 16,




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                                     426                 139 UNITED STATES TAX COURT REPORTS                                      (418)


                                     1992, respondent credited $2,176,636 of the $2,920,000 pay-
                                     ment to the MCLT’s 1991 Federal income tax liability. The
                                     excess payment (i.e., $743,364) was treated as an overpay-
                                     ment of tax for the MCLT’s 1991 tax year. That amount, in
                                     addition to the $80,000, which was posted to the MCLT’s 1992
                                     account, was credited to an ‘‘excess collection account’’. 13
                                     Although the record is silent as to when and on behalf of
                                     which taxpayer, Mr. Smith made additional payments to the
                                     IRS totaling $3,327,229.

                                     Joint Motion and Payments Made Thereunder
                                        On September 30, 1993, over petitioner’s objections, the
                                     bankruptcy court by order approved a Joint Motion for
                                     Approval of Compromise of Tax Liabilities Asserted by
                                     United States of America (joint motion) filed by the U.S.
                                     Department of Justice and Mr. Smith. The joint motion
                                     sought the bankruptcy court’s approval of a compromise and
                                     settlement of the tax liabilities, addressed in the above-men-
                                     tioned RARs, of Holywell and its subsidiaries, the MCLT, and
                                     petitioner’s bankruptcy estate. In relevant part, the joint
                                     motion stated that the asserted income tax liabilities would
                                     be settled on the basis of, among other things: (1) a payment
                                     of $10 million (in addition to the previous payment of
                                     approximately $3,327,229) by the trustee to the United
                                     States, and (2) that ‘‘there shall be no tax attribute
                                     carryovers available to * * * the bankruptcy estate of Theo-
                                     dore B. Gould as of October 10, 1985’’. The joint motion did
                                     not identify the accounts or taxable years to which the pay-
                                     ments by Mr. Smith would be allocated.
                                        In accordance with the joint motion, on October 12, 1993,
                                     Mr. Smith remitted a $10 million payment to the IRS; the IRS
                                     credited the payment against Holywell’s Federal income tax
                                     liability for fiscal year ended July 31, 1986.
                                        On September 9, 1998, the bankruptcy court entered a
                                     final decree terminating the MCLT and closing the bank-
                                     ruptcy case as to each debtor.
                                       13 An excess collection file is a file within the IRS’ computer system identifying nonrevenue

                                     receipts (payments received for items other than taxes), which cannot be identified or applied
                                     to their proper account. If the item is not later credited to its proper account, the file will con-
                                     tain excess collections and revenue clearance accountability data for up to seven years from the
                                     date of the payment to the excess collection file. Internal Revenue Manual pt. 3.17.220.1.8(1)
                                     (Jan. 1, 2012).




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                                     (418)                              GOULD v. COMMISSIONER                                          427


                                     Petitioners’ Joint Federal Income Tax Returns
                                        Edgar Schumacher, a certified public accountant, prepared
                                     petitioners’ 1991–94 joint Forms 1040, U.S. Individual
                                     Income Tax Return. Mr. Schumacher also prepared financial
                                     information for MCJV, MCLP, and Chopin, from which the
                                     entities’ Schedules K–1, Shareholder’s Share of Income,
                                     Credits, Deductions, etc., were prepared; petitioners’ 1991–94
                                     Forms 1040 were prepared from those Schedules K–1.
                                        Mr. Gould prepared petitioners’ 1995 joint Form 1040,
                                     amended 1995 joint Form 1040, and 1996, 1997, and 1999–
                                     2002 joint Forms 1040. 14 Petitioners paid their attorney,
                                     Robert Musselman, to review the 1995–99 joint Forms 1040
                                     before their filing. Mr. Musselman did not sign the Forms
                                     1040 as a paid preparer. 15
                                        On their 1995–2002 Forms 1040, petitioners reported tax
                                     liabilities and claimed NOL deductions, capital losses, and
                                     estimated tax payments as follows: 16
                                                                                                                              Estimated
                                                Year                Tax liability          NOL             Capital loss     tax payments

                                                1995                 $17,133             $80,498             $3,000               -0-
                                           1995 (amended)             12,247             188,305              3,000           $3,103,406
                                                1996                   9,747              75,355              5,125            3,091,159
                                                1997                   5,478              39,848             18,964               91,159
                                                1998                   8,433              63,002              3,000            3,299,528
                                                1999                  11,450              97,478             17,939           26,162,136
                                                2000                  18,463             351,331              3,000           26,154,983
                                                2001                  11,956             105,822              4,305           44,823,979
                                                2002                  13,353             121,885              3,000           44,812,023

                                       The claimed NOLs relate to (1) NOLs of petitioner’s bank-
                                     ruptcy estate, to which petitioner believes he succeeded upon
                                     the termination of his bankruptcy estate, pursuant to section
                                     1398(i), and (2) losses attributable to petitioner’s alleged
                                     distributive share of losses from property held by the MCLT,
                                     including MCJV, between 1985 and 1991, and losses not con-
                                     nected with the MCLT. Although petitioners deducted on their
                                     1995–2002 Forms 1040 Mr. Gould’s alleged shares of MCJV’s
                                     losses, they failed to report his share of MCJV’s income gen-
                                     erated during those years.
                                        14 It is not clear whether Mr. Gould prepared petitioners’ 1998 joint Form 1040 but, in honor

                                     of consistency, we assume that he did.
                                        15 The record is silent as to whether Mr. Gould prepared petitioners’ 2003 joint Form 1040

                                     and 2005–07 joint Forms 1040. Moreover, those returns are not in evidence.
                                        16 We do not include petitioners’ 2003 and 2005–07 joint Forms 1040 because those returns

                                     are not in evidence.




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                                     428                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                       Petitioners did not remit any of the estimated tax pay-
                                     ments reported on their joint 1995–2002 Forms 1040. More-
                                     over, respondent’s records, the Forms 4340, Certificate of
                                     Assessments, Payments and Other Specified Matters, for
                                     petitioners’ 1995–2002 taxable years, reflect no estimated tax
                                     payments.
                                       Petitioners reported self-employment tax liabilities on the
                                     1995 joint Form 1040, amended 1995 joint Form 1040, and
                                     1996–2003 and 2005–07 joint Forms 1040 but did not pay
                                     those amounts.
                                       Respondent assessed the self-reported tax liabilities,
                                     including penalties and interest, for those years.
                                     MCLT’s 1997 and 1998 Federal Tax Returns
                                       In 2000 and 2001, petitioner filed amended Forms 1041,
                                     U.S. Income Tax Return for Estates and Trusts, for the
                                     MCLT’s: (1) taxable year ended December 31, 1997, reporting
                                     a tax liability of $22,871,041, and (2) short taxable year
                                     ended October 26, 1998, reporting a tax liability of
                                     $8,672,291. Respondent assessed the amounts reported.
                                     Although these amounts were not paid, petitioners reported
                                     those assessments on their joint tax returns as estimated tax
                                     payments. Respondent later abated the assessments.
                                     Levy Notices for 1995, 1996, and 1999
                                       Respondent issued to petitioners a Final Notice—Notice of
                                     Intent to Levy and Notice of Your Right to a Hearing (levy
                                     notice), dated April 1, 2002, informing them that he intended
                                     to collect by levy petitioners’ assessed but unpaid 1999 self-
                                     employment taxes, penalties, and interest. Respondent issued
                                     a second levy notice (collectively, levy notices), dated July 1,
                                     2002, informing petitioners of his intent to collect by levy
                                     petitioners’ assessed but unpaid 1995 and 1996 self-employ-
                                     ment taxes, penalties, and interest.
                                     Collection Due Process (CDP) Hearing and Notices of Deter-
                                     mination for 1995, 1996, and 1999
                                       In response to each levy notice, petitioners timely sub-
                                     mitted a Form 12153, Request for a Collection Due Process
                                     or Equivalent Hearing (hearing requests). In the hearing
                                     request regarding tax year 1999, petitioners raised the ques-




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                                     (418)                           GOULD v. COMMISSIONER                                       429


                                     tion of their underlying liability, contending that no tax is
                                     due because Mr. Smith ‘‘paid $13,347,000 in taxes as ‘the
                                     fiduciary of trust of an individual’, which must be credtied
                                     [sic] to the taxpayer’s account as the beneficial owner of the
                                     property transferred to Miami Center Liquidating Trust and
                                     its sole beneficiary.’’ Petitioners made a similar argument in
                                     the hearing request regarding tax years 1995 and 1996,
                                     except that they asserted that Mr. Smith ‘‘paid taxes
                                     exceeding $13,361,000’’. Petitioners proposed no collection
                                     alternatives in either hearing request.
                                        Appeals Officer David Reilly was assigned the hearing
                                     requests. He determined that petitioners’ arguments were
                                     groundless because Appeals had concluded in a previous
                                     hearing relating to petitioners’ 1997 tax liability that there
                                     exists ‘‘no legal theory under which * * * [petitioner] may be
                                     the grantor and beneficiary of the Miami Center Liquidating
                                     Trust.’’ Appeals Officer Reilly, therefore, determined that
                                     petitioners were not eligible for a face-to-face CDP hearing.
                                     Petitioners’ CDP hearing was ultimately conducted by cor-
                                     respondence. Subsequently, Appeals issued the notices of
                                     determination sustaining in full the levy notices.
                                        Petitioners assign error to the notices of determination,
                                     claiming that they are ‘‘contrary to the Supreme Court’s
                                     opinion, cited as Holywell Corp., et al. v. Smith, 503 U.S. 47
                                     (1992), the provisions of the Internal Revenue Code, the
                                     regulations and rulings promulgated thereunder concerning
                                     liquidating trusts, and barred by the doctrine of collateral
                                     estoppel.’’
                                     Notice of Deficiency
                                        In support of the deficiencies in tax he determined,
                                     respondent made adjustments to petitioners’ income dis-
                                     allowing, among other things, for lack of substantiation, NOL
                                     deductions and capital loss carryovers claimed on petitioners’
                                     joint 1995–2002 Forms 1040. Respondent also determined a
                                     civil fraud penalty under section 6663(a) for each of those
                                     years, or alternatively, for 2002, a section 6662(a) accuracy-
                                     related penalty attributable to a substantial understatement
                                     of income tax or negligence. Petitioners assign error to those
                                     determinations.




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                                     430                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     Levy Notices and Lien Notice for 2000–2003 and 2005–07
                                       After petitioners had filed petitions with this Court for tax
                                     years 1995–2002, respondent issued petitioners each a sepa-
                                     rate levy notice, dated December 7, 2009, informing them
                                     that he intended to collect by levy their assessed but unpaid
                                     2000–2003 and 2005–07 self-employment taxes, penalties,
                                     and interest. Respondent also issued to petitioners a Notice
                                     of Federal Tax Lien Filing and Your Right to a Hearing
                                     Under IRC 6320 (lien notice), dated December 26, 2009,
                                     informing them that he had filed, on December 14, 2009, a
                                     notice of Federal tax lien relating to their assessed self-
                                     employment taxes for those years.
                                     CDP Hearing and Notice of Determination for 2000–2003 and
                                     2005–07
                                        In response to the levy notices and the lien notice for
                                     2000–2003 and 2005–07, petitioners timely submitted Forms
                                     12153 (collectively, levy and lien hearing requests) in which
                                     they raised the question of their underlying liabilities, con-
                                     tending that ‘‘no taxes are due’’ and that the lien should be
                                     withdrawn for the same reasons as stated in the hearing
                                     requests relating to 1995, 1996, and 1999. Petitioners pro-
                                     posed no collection alternatives in either hearing request
                                     relating to 2000–2003 and 2005–07.
                                        Settlement Officer D.W. DeVincentz was assigned the lien
                                     and levy hearing requests and scheduled with petitioner a
                                     telephone CDP hearing. During a telephone call with peti-
                                     tioner before the scheduled CDP hearing, Settlement Officer
                                     DeVincentz offered him a face-to-face CDP hearing at certain
                                     locations, but petitioner rejected those locations. Appeals
                                     issued a notice of determination sustaining in full the notice
                                     of Federal tax lien and the notice of intent to levy for 2000–
                                     2003 and 2005–07, stating that petitioners offered no collec-
                                     tion alternatives and ‘‘could not dispute [their] liability’’
                                     because ‘‘This issue has been repeatedly challenged by the
                                     taxpayer and ruled against him.’’
                                        Petitioners assign error to the notice of determination for
                                     years 2000–2003 and 2005–07, claiming that ‘‘the issuance of
                                     the respondent’s Determination, without a CDP Hearing,
                                     denying without citation, that the trustee’s overpayment of
                                     approximately $13,361,000 as a fiduciary, acting on the Tax-




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                                     (418)                             GOULD v. COMMISSIONER                                        431


                                     payer’s behalf, were available as credits to the Taxpayer’s
                                     account, was an abuse of discretion’’.

                                                                                    OPINION

                                     I. Deficiency Proceeding Regarding Petitioners’ 1995–2002
                                        Tax Liabilities
                                            A. Period of Limitations
                                            1. Introduction
                                       A deficiency in tax generally must be assessed within three
                                     years of the date on which the return was filed. See sec.
                                     6501(a). If a taxpayer files ‘‘a false or fraudulent return with
                                     the intent to evade tax,’’ however, the tax may be assessed
                                     at any time. Sec. 6501(c)(1). The parties agree that, unless
                                     petitioners’ returns for 1995–2001 were made falsely or
                                     fraudulently with the intent to evade tax, the period of
                                     limitations on assessment and collection of petitioners’
                                     income tax for those years has expired. 17
                                       Respondent bears the burden of proving an exception to
                                     the general limitations period, see, e.g., Harlan v. Commis-
                                     sioner, 116 T.C. 31, 39 (2001), and his burden here is the
                                     same as his burden under section 6663 to prove applicability
                                     of the civil fraud penalty (which is also at issue), see, e.g.,
                                     Browning v. Commissioner, T.C. Memo. 2011–261.
                                     Respondent must establish by clear and convincing evidence
                                     that petitioners filed false and fraudulent returns with the
                                     intent to evade tax. Rule 142(b); see sec. 7454(a). To do so,
                                     respondent must establish by that standard both that (1)
                                     petitioners underpaid their income tax for 1995–2002 and (2)
                                     at least some portion of each such underpayment was due to
                                     fraud. E.g., DiLeo v. Commissioner, 96 T.C. 858, 873 (1991),
                                     aff ’d, 959 F.2d 16 (2d Cir. 1992).
                                            2. Underpayment of Tax
                                       Respondent argues that petitioners underpaid their 1995–
                                     2002 income tax because of overstated NOL and capital loss
                                     carryover deductions claimed on their tax returns for those
                                     years. Petitioners argue that they are entitled to the claimed
                                     deductions because (1) the MCLT was a grantor trust and
                                           17 As   stated supra note 5, the period of limitations remains open for assessment as to 2002.




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                                     432                 139 UNITED STATES TAX COURT REPORTS                                     (418)


                                     petitioner was its grantor or substantial owner pursuant to
                                     sections 671–677, such that he is entitled to the NOLs of the
                                     trust, (2) petitioner succeeded to his bankruptcy estate’s tax
                                     attributes, including its NOLs, for tax year 1985, 18 and (3)
                                     petitioner incurred capital losses in 1991 from his investment
                                     in TBG Associates, Ltd., which he carried over to subsequent
                                     taxable years.
                                           a. NOL Carryovers
                                       Section 172 provides for an NOL deduction. Section 172(c)
                                     defines an NOL as the excess of the deductions allowed over
                                     the gross income. In general, an NOL for any taxable year
                                     may be carried back to each of the three taxable years pre-
                                     ceding the taxable year of the loss and carried over to each
                                     of the 15 taxable years following the taxable year of the loss.
                                     Sec. 172(b)(1)(A).
                                       On petitioners’ amended joint 1995 Form 1040 and joint
                                     1996–2002 Forms 1040, petitioners reported NOL deductions
                                     of $188,305, $75,355, $39,848, $63,002, $97,478, $351,331,
                                     $105,822, and $121,885, respectively. The NOL carryovers
                                     consist of losses of Holywell, MCC, MCLP, Chopin, and MCJV.
                                     The parties do not dispute the amounts of those losses
                                     reported on petitioners’ tax returns, merely petitioners’
                                     entitlement to deduct those losses.
                                           (1) The MCLT Is Not a Grantor Trust.
                                       Petitioners argue that they are entitled to NOLs of the
                                     MCLT  because the trust was a grantor trust and petitioner its
                                     grantor or substantial owner pursuant to sections 671–677.
                                     As discussed supra, Mr. Smith brought suit in the bank-
                                     ruptcy court against the U.S. Government, BNY, and the
                                     debtors for a declaration of the MCLT’s responsibility to file
                                     returns and pay Federal income taxes due. The bankruptcy
                                     court found Mr. Smith, as trustee, not liable for payment of
                                        18 At trial, respondent raised the issue of whether petitioner or petitioner’s bankruptcy estate

                                     was the partner entitled to a distributive share of losses from MCLP, Chopin, and MCJV be-
                                     tween 1985 and 1991. We asked the parties to address on brief whether petitioner’s status as
                                     a partner involved a partnership item necessitating a partnership-level proceeding pursuant to
                                     the unified audit and litigation procedures enacted as part of the Tax Equity and Fiscal Respon-
                                     sibility Act of 1982, Pub. L. No. 97–248, sec. 402(a), 96 Stat. at 648. Although the parties ad-
                                     dressed that issue on brief, petitioners do not rely on petitioner’s partner status as the reason
                                     for their entitlement to the partnerships’ NOLs. Therefore, resolution of the jurisdictional issue
                                     is unnecessary, and we do not address it.




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                                     (418)                           GOULD v. COMMISSIONER                                         433


                                     Federal income taxes because the MCLT was a grantor trust
                                     (the debtors being its grantors pursuant to section 677(a)); as
                                     a grantor trust, it was not a taxable entity for Federal
                                     income tax purposes. Smith, 85 B.R. at 901–902. On the
                                     basis of that finding, petitioners argue that respondent is
                                     both collaterally estopped 19 and barred by res judicata 20
                                     from now arguing that the MCLT was not a grantor trust.
                                           (a) Collateral Estoppel
                                       In Ron Lykins, Inc. v. Commissioner, 133 T.C. 87, 101
                                     (2009), we stated:
                                     The rule of collateral estoppel provides that ‘‘[w]hen an issue of fact or law
                                     is actually litigated and determined by a valid and final judgment, and the
                                     determination is essential to the judgment, the determination is conclusive
                                     in a subsequent action between the parties, whether on the same or dif-
                                     ferent claim.’’ 1 Restatement, Judgments 2d, sec. 27 (1982) (emphasis
                                     added); see also Montana v. United States, 440 U.S. 147, 153–154 (1979).
                                     * * *

                                     The following conditions must be satisfied for collateral
                                     estoppel to apply to an issue:
                                     (1) the issue to be decided in the second case must be identical in all
                                     respects to the issue decided in the first case, (2) a court of competent
                                     jurisdiction must have rendered a final judgment in the first case, (3) a
                                     party may invoke the doctrine only against parties to the first case or
                                       19 Petitioners also assert that respondent is collaterally estopped from arguing that the MCLT

                                     was not a liquidating trust. We need not address that claim because respondent agrees that it
                                     was a liquidating trust. Furthermore, with regard to the lien and levy issue for years 2000–
                                     2003 and 2005–07, petitioners have raised arguments regarding collateral estoppel that were
                                     not raised in docket Nos. 5887–07L and 4592–08, including that respondent is collaterally es-
                                     topped from arguing that petitioner’s bankruptcy estate did not terminate on October 10, 1985.
                                     Because we determine infra that the MCLT is not a grantor trust as to petitioner and because
                                     the parties anchor their arguments to October 10, 1985, as the termination date of petitioner’s
                                     bankruptcy estate, see infra note 29, those arguments are without force and we do not discuss
                                     them.
                                       20 Petitioners argue that respondent is barred by res judicata from making several arguments,

                                     including that the MCLT was not a grantor trust because ‘‘the question was an admissible mat-
                                     ter that the respondent could have offered [before the U.S. Supreme Court], and did not, to de-
                                     feat the Eleventh Circuit’s conclusion that the petitioner as ‘the reorganized debtor, not the liq-
                                     uidating trustee[,] is responsible for such taxes’ ’’. They also argue that res judicata binds re-
                                     spondent as to the bankruptcy court’s amended order. We do not understand petitioners’ second
                                     argument; in any event, res judicata does not apply in these cases. One of the elements of res
                                     judicata, an identity of the cause of action in the earlier and later suits, Frank Sawyer Trust
                                     of May 1992 v. Commissioner, 133 T.C. 60, 71–72 (2009), is not present in these proceedings.
                                     The issue in the earlier suit was Mr. Smith’s obligation to file tax returns and pay taxes due
                                     on behalf of the corporate debtors and petitioner’s bankruptcy estate for tax years 1985–91. The
                                     issue before us involves petitioners’ tax liabilities for tax years 1995–2003 and 2005–07. The
                                     causes of action are different and, accordingly, the principles of res judicata do not apply in the
                                     instant proceedings. We do not further address petitioners’ argument.




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                                     434                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     those in privity with them, (4) the parties must have actually litigated the
                                     issue and the resolution of the issue must have been essential to the prior
                                     decision, and (5) the controlling facts and legal principles must remain
                                     unchanged. * * * [Hi-Q Personnel, Inc. v. Commissioner, 132 T.C. 279, 289
                                     (2009).]

                                        Respondent argues that the five conditions necessary for
                                     him to be collaterally estopped from denying that the MCLT
                                     is not a grantor trust have not been satisfied in these cases.
                                     More fundamentally, however, he argues, and we agree, that
                                     collateral estoppel does not apply to a trial court’s conclu-
                                     sions of law or findings of fact where its judgment is vacated,
                                     reversed, or set aside by an appellate court. Hudson v.
                                     Commissioner, 100 T.C. 590, 593 (1993). The bankruptcy
                                     court’s judgment was affirmed by the District Court for the
                                     Southern District of Florida, whose judgment was later
                                     affirmed by the Court of Appeals for the Eleventh Circuit.
                                     The U.S. Supreme Court, however, reversed the judgment of
                                     the Court of Appeals for the Eleventh Circuit. Holywell
                                     Corp., 503 U.S. 47. With respect to the Supreme Court’s
                                     reversal of the Court of Appeals, petitioners argue that the
                                     bankruptcy court’s holding that the MCLT was a grantor trust
                                     survived that reversal. They assert that the Court did not
                                     address whether the MCLT was a grantor trust and that the
                                     Court ‘‘did not overrule the Bankruptcy Court with respect to
                                     its finding * * *, the Supreme Court merely said that Peti-
                                     tioner is not a ‘grantor’ in the classic sense of the term.’’
                                        Petitioners are wrong. The Court effectively reversed the
                                     bankruptcy court’s finding as it pertained to petitioner. The
                                     Court stated that it ‘‘fail[ed] to see how the respondents can
                                     characterize him [petitioner] as the grantor’’ under section
                                     1.677(a)–1(d), Income Tax Regs., which implements section
                                     677(a), the same provision under which the bankruptcy court
                                     found the debtors, including petitioner, to be grantors of the
                                     trust. Id. at 57. The Court found that petitioner had contrib-
                                     uted nothing to the MCLT. Id. With respect to the property
                                     received from petitioner’s bankruptcy estate, the Court
                                     treated the MCLT as a trust for which the fiduciary, Mr.
                                     Smith, had to make a return. Id. at 54. Whether the Court’s
                                     opinion preserved the bankruptcy court’s finding that the
                                     MCLT was a grantor trust to the extent of the other debtors’
                                     interests has no bearing on its reversal of the bankruptcy
                                     court’s finding as it pertains to petitioner.




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                                     (418)                           GOULD v. COMMISSIONER                                         435


                                       Petitioners cannot, as a basis for collateral estoppel, rely
                                     on the bankruptcy court’s findings that the MCLT was a
                                     grantor trust since its finding, in that respect, did not sur-
                                     vive the Supreme Court’s reversal of the Court of Appeals. 21
                                           (b) Grantor Trust Rules
                                        Section 671 provides that, where the grantor or another
                                     person is treated as the owner of any portion of a trust, he
                                     shall compute his taxable income and credits by taking into
                                     account ‘‘those items of income, deductions, and credits
                                     against tax of the trust which are attributable to that portion
                                     of the trust’’. A grantor or another person is treated as the
                                     owner of a portion of a trust upon satisfaction of any one of
                                     five conditions enumerated in sections 673–678. If the
                                     grantor is so treated, the trust is a grantor trust as to him
                                     and is not treated as a separate taxable entity for Federal
                                     income tax purposes to the extent of the grantor’s retained
                                     interest. See sec. 1.671–2(b), Income Tax Regs. The grantor,
                                     therefore, must report his portion of the trust’s income and
                                     deductions on his personal Federal income tax return. Id.
                                        Petitioners contend that Mr. Gould is entitled to claim on
                                     each of his 1995–2002 Forms 1040 an NOL deduction, con-
                                     sisting of NOL carryovers from 1985–91, because the MCLT
                                     constituted a grantor trust pursuant to the provisions of sec-
                                     tions 671–677 from 1985–91 and is thus to be disregarded as
                                     a separate taxable entity to the extent of the grantor’s
                                     retained interest. Although their briefs are unclear, we
                                     understand petitioners to support their contention with the
                                     following assertions: (1) Petitioner is the grantor 22 of the
                                       21 Apparently on the basis that he cannot show satisfaction of the five preconditions for collat-

                                     eral estoppel, respondent does not argue that, because the Supreme Court reversed the bank-
                                     ruptcy court’s ruling that petitioner contributed property to the MCLT and was a grantor with
                                     respect thereto, petitioners are collaterally estopped from arguing petitioner’s grantor status
                                     with respect to the MCLT.
                                       22 At trial, petitioner conceded that he was not the grantor of the MCLT but instead its sub-

                                     stantial owner under sec. 678. On brief, petitioners failed to address the substantial owner argu-
                                     ment, and we consider it to be abandoned. See Mendes v. Commissioner, 121 T.C. 308, 312–313
                                     (2003) (‘‘If an argument is not pursued on brief, we may conclude that it has been abandoned.’’).
                                     Despite petitioner’s concession at trial, he argues on brief that he is grantor of the MCLT with
                                     respect to the entire portion of trust income. Considering petitioner’s pro se status at trial and
                                     his subsequent retention of counsel in docket Nos. 5887–07L and 4592–08, we reject his conces-
                                     sion and rely on his arguments made on brief.
                                       We note that, in docket No. 11606–10L, on brief, petitioners argue that petitioner ‘‘must be
                                     deemed the person referred to as the ‘substantial owner’ in section 671’’. On the basis of the
                                     arguments following that contention, we believe that petitioners use the term ‘‘substantial
                                                                                                    Continued




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                                     436                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     MCLT with respect to the entire portion of trust income under
                                     section 1.671–2(e)(1), Income Tax Regs., because the trust
                                     was created and funded gratuitously on his behalf, or, alter-
                                     natively, under section 1.671–2(e)(3), Income Tax Regs.,
                                     because he acquired an interest in the trust from his bank-
                                     ruptcy estate upon its termination, and (2) petitioner is the
                                     owner of the entire portion of trust income under section
                                     1.677(a)–1(d), Income Tax Regs., because the trust income
                                     was used to discharge his debt. 23 Petitioners conclude that
                                     they are, therefore, entitled to report on their 1995–2002 per-
                                     sonal tax returns NOL carryovers attributable to the trust’s
                                     1985–91 NOLs. They argue that petitioner is grantor and
                                     owner of the entire portion of the trust income because,
                                     through his stock ownership and partnership interests, he
                                     owned in its entirety the MCLP, Chopin, MCC, and Holywell
                                     assets 24 and the 50% partnership interest in MCJV held by
                                     the MCLT.
                                       The regulations upon which petitioners rely in claiming
                                     grantor status do not govern our analysis. In relevant part,
                                     section 1.671–2(e)(1), Income Tax Regs., defines a grantor as
                                     any person on whose behalf another person creates a trust
                                     or any person who directly or indirectly makes a gratuitous
                                     transfer of property to a trust. Section 1.671–2(e)(3), Income
                                     Tax Regs., includes as a grantor of a trust ‘‘any person who
                                     acquires an interest in a trust from a grantor of the trust if
                                     the interest acquired is an interest in * * * [among other
                                     types of trusts] liquidating trusts’’. The regulations, however,
                                     are effective for transfers to a trust, or a transfer of an
                                     interest in a trust, on or after August 10, 1999, well after
                                     October 10, 1985, the date on which the MCLT was funded.
                                     Sec. 1.671–2(e)(7), Income Tax Regs.
                                       Petitioners assert that, although not effective at the time
                                     of the MCLT’s creation and funding, the regulations were ‘‘not
                                     intended to change the result of existing law with respect to
                                     owner’’ and ‘‘grantor’’ interchangeably. In any event, they have neither shown petitioner’s satis-
                                     faction of sec. 678 nor specifically argued the applicability of sec. 678.
                                        23 Although petitioners also argue that petitioner is the owner of the MCLT because, pursuant

                                     to the plan, he is entitled to ‘‘any property remaining [in the MCLT] after paying the claims
                                     of creditors’’, they have neither shown that that entitlement constitutes a reversionary interest
                                     within the meaning of sec. 673 nor specifically argued the applicability of sec. 673. We, there-
                                     fore, do not discuss that argument further.
                                        24 In docket No. 11606–10L, on brief, petitioners concede that Holywell’s NOL carryovers were

                                     lost as of October 10, 1985, and that the MCLT ‘‘did not have net operating losses [sic] deduc-
                                     tions allowable under Section 172’’. The amounts of any unused losses are very much in doubt.




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                                     (418)                           GOULD v. COMMISSIONER                                       437


                                     trusts used for business purposes.’’ They contend that,
                                     although not specifically identified, ‘‘it is clear from the
                                     examples that a liquidating trust’’ would qualify as a trust
                                     used for business purposes. They conclude that, because the
                                     MCLT, a liquidating trust, had a business purpose, the regula-
                                     tions ‘‘simply codified existing law’’ and, therefore, its defini-
                                     tions of ‘‘grantor’’ are applicable.
                                        Before the regulations were promulgated, there existed no
                                     definition of ‘‘grantor’’ for purposes of sections 671–677. This
                                     Court had defined a settlor of a trust (i.e., grantor) generally
                                     as one who furnishes the major portion of consideration for
                                     the trust’s creation. See, e.g., Bixby v. Commissioner, 58 T.C.
                                     757, 791 (1972); Smith v. Commissioner, 56 T.C. 263, 290
                                     (1971). Moreover, we stated: ‘‘In determining the settlors of
                                     a trust, we look beyond the named grantors to the economic
                                     realities to determine the true grantor.’’ Zmuda v. Commis-
                                     sioner, 79 T.C. 714, 720 (1982), aff ’d, 731 F.2d 1417 (9th Cir.
                                     1984); CIM Trust v. Commissioner, T.C. Memo. 2001–172.
                                     Petitioner fails to qualify as a settlor of the MCLT. Petitioner
                                     did not furnish any, not to mention the major portion of,
                                     consideration for the MCLT’s establishment. Indeed, the U.S.
                                     Supreme Court concluded, in Holywell Corp., 503 U.S. at 57,
                                     that ‘‘Gould himself did not contribute anything to the trust’’.
                                     On August 22, 1984, petitioner filed a voluntary petition for
                                     protection under chapter 11 of the Bankruptcy Code, which
                                     created a bankruptcy estate, a separate entity from the indi-
                                     vidual debtor (i.e., petitioner) for bankruptcy purposes and a
                                     separate taxpayer for Federal income tax purposes. 25 Sec.
                                     1398; 11 U.S.C. sec. 541(a) (2006); Williams v. Commissioner,
                                     123 T.C. 144, 148 (2004). On that date, all of petitioner’s
                                     legal or equitable interests in property as of the commence-
                                     ment of the bankruptcy case were transferred to, and vested
                                     in, that separate taxable entity. See 11 U.S.C. sec. 541(a)(1).
                                     Thus, petitioner’s bankruptcy estate would take into account
                                     those items of income or loss attributable to the property
                                     received from him and disposed of by the estate. See sec.
                                     1398(e)(1), (g)(6). On October 10, 1985, pursuant to the con-
                                     firmation plan, petitioner’s bankruptcy estate transferred
                                     that property directly into the MCLT; we agree with the
                                       25 In contrast, no separate taxable entity results upon the filing of a voluntary petition by a

                                     partnership or a corporation for protection under ch. 11 of the Bankruptcy Code. Sec. 1399.




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                                     438                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     Supreme Court in Holywell Corp., 503 U.S. at 57, that the
                                     property did not revest in petitioner before its transfer to the
                                     MCLT. 26 Petitioner transferred no property to the MCLT.
                                        Even if section 1.671–2(e), Income Tax Regs., applied to
                                     the situation herein, the regulations fail to support peti-
                                     tioners’ claim. Section 1.671–2(e)(1), Income Tax Regs., pro-
                                     vides that the term ‘‘grantor’’ includes persons creating a
                                     trust or directly or indirectly making a gratuitous transfer
                                     (i.e., a transfer other than for fair market value, see sec.
                                     1.671–2(e)(2)(i), Income Tax Regs.) to a trust. If a person cre-
                                     ates or funds a trust on behalf of another person, both per-
                                     sons are treated as grantors of the trust. Sec. 1.671–2(e)(1),
                                     Income Tax Regs. Petitioners argue that petitioner is
                                     included in that definition of a grantor because the trust was
                                     created and funded on his behalf since ‘‘The Plan specifically
                                     provided that ‘[a] Trust is hereby declared on behalf of the
                                     Debtors * * * ’. (Emphasis supplied.)’’.
                                        Petitioners state that, in order for the on-behalf-of rule
                                     found in section 1.671–2(e)(1), Income Tax Regs., to apply,
                                     ‘‘the funding of the trust must be gratuitous’’. The fact is,
                                     however, that neither the funding debtors nor petitioner’s
                                     bankruptcy estate gratuitously funded the MCLT; they did so
                                     because they were compelled to under the plan. Nor can we
                                     say that the MCLT was formed on petitioner’s behalf, as the
                                     term ‘‘on behalf of another person’’ is used in the regulations.
                                     Petitioners have identified no cases, nor have we found any,
                                     that support their argument that the trust was formed on
                                     petitioner’s behalf because he, in some sense, might benefit
                                     from the trust; i.e., he might receive a portion of the residue
                                     of the trust after it liquidated its assets and paid the credi-
                                     tors. A trust is by definition ‘‘a property interest held by one
                                     person (the trustee) at the request of another (the settlor) for
                                     the benefit of a third party (the beneficiary).’’ Black’s Law
                                     Dictionary 1647 (9th ed. 2009). If we were to take petitioners’
                                       26 The Court, in Holywell Corp., 503 U.S. at 57, distinguished In re Sonner, 53 B.R. 859

                                     (Bankr. E.D. Va. 1985), which applied the grantor trust provisions to make the debtor the grant-
                                     or of a postconfirmation liquidating trust. The Court stated that, in In re Sonner, pursuant to
                                     the ch. 11 plan of reorganization, it appeared that the property of the estate had revested in
                                     the debtor upon confirmation before being placed by him in trust to pay his creditors. Holywell
                                     Corp., 503 U.S. at 57. It added: ‘‘In this case [i.e., Holywell Corp.], however, the property of
                                     Gould’s bankruptcy estate did not revest in Gould. The plan, instead, placed all of the estate’s
                                     property directly in the Miami Center Liquidating Trust. Gould himself did not contribute any-
                                     thing to the trust’’. We venture no opinion as to whether the assets of petitioner’s bankruptcy
                                     estate should be deemed distributed to the creditors of that estate before being placed in trust.




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                                     (418)                           GOULD v. COMMISSIONER                                        439


                                     meaning for the term ‘‘on behalf of ’’, the beneficiary of every
                                     trust would, at the same time, be its grantor, a conflation we
                                     reject. The regulations contain two examples indicating that
                                     the person creates or funds a trust on behalf of another when
                                     the former acts for the latter in establishing the trust. See
                                     sec. 1.671–2(e)(6), Examples (3), (8), Income Tax Regs. That
                                     seems a better meaning. Petitioner reimbursed no one’s con-
                                     tribution to the MCLT, nor did anyone act for petitioner in
                                     funding it; each of the other debtors and petitioner’s bank-
                                     ruptcy estate acted for itself, as directed in the plan.
                                        We similarly find that petitioner does not satisfy section
                                     1.671–2(e)(3), Income Tax Regs. The regulations provide that
                                     a grantor of a trust includes ‘‘any person who acquires an
                                     interest in a trust from a grantor of the trust if the interest
                                     acquired is an interest in’’ certain trusts, including liqui-
                                     dating trusts. Sec. 1.671–2(e)(3), Income Tax Regs. We
                                     deduce from petitioners’ briefs that they contend that peti-
                                     tioner acquired an interest in the MCLT from his bankruptcy
                                     estate pursuant to section 1398(i). Section 1398(i), however,
                                     addresses the debtor’s succession to tax attributes of his
                                     bankruptcy estate, not the transfer of legal or beneficial
                                     interests in property.
                                        Having found that petitioner was not a grantor of the
                                     MCLT, we need not address petitioners’ argument that peti-
                                     tioner is the owner of a portion of the trust income. Even if
                                     we had found him to be a grantor, petitioners would not pre-
                                     vail on that argument. In support of their argument, peti-
                                     tioners rely on the same Code section, section 677, regula-
                                     tions, section 1.677(a)–1(d), Income Tax Regs., 27 and case, In
                                     re Sonner, 53 B.R. 859 (Bankr. E.D. Va. 1985), that were
                                     relied upon in Holywell Corp., 503 U.S. at 56–57, and which
                                     the U.S. Supreme Court rejected. On brief, petitioners reit-
                                     erate the same arguments that were rejected by the Court
                                     and offer no reason for us to deviate from the Supreme
                                     Court’s analysis and conclusion. 28
                                        27 Sec. 1.677(a)–1(d), Income Tax Regs., provides that a grantor is treated as the owner of a

                                     portion of a trust whose income ‘‘is, or in the discretion of the grantor or a nonadverse party,
                                     or both, may be applied in discharge of a legal obligation of the grantor’’.
                                        28 Petitioners also argue that petitioner became the sole owner of all of the debtors’ property

                                     for tax purposes upon the property’s vesting in the MCLT. In support of that argument, peti-
                                     tioners assert two alternative grounds. (1) The assignment to the MCLT of all of the property
                                     of Holywell and MCC resulted in a deemed liquidating distribution to petitioner as the sole
                                     shareholder of Holywell (which had owned MCC). Upon the corporations’ liquidations, he also
                                                                                                    Continued




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                                     440                 139 UNITED STATES TAX COURT REPORTS                                     (418)


                                       Accordingly, we find that petitioner was not a grantor of
                                     the MCLT. Therefore, the MCLT did not with respect to him
                                     constitute a grantor trust such that a portion of its income
                                     and deductions must be reported on petitioners’ personal tax
                                     returns. They, therefore, are not entitled to take into account
                                     in computing their taxable income NOLs belonging to the
                                     trust.
                                           (2) Petitioners Are Not Entitled to NOL Carryovers of Peti-
                                               tioner’s Bankruptcy Estate Upon Its Termination.
                                        Next, petitioners argue that they are entitled to
                                     $18,180,307 in NOL carryovers that they claim passed to peti-
                                     tioner from his bankruptcy estate pursuant to section 1398(i).
                                     They assert that, upon the bankruptcy estate’s termination
                                     on October 10, 1985, petitioner succeeded to its NOL
                                     carryovers, which consisted of (1) petitioner’s NOLs of
                                     $11,722,009 to which, on August 22, 1984, the bankruptcy
                                     estate had succeeded and that remained unused at its termi-
                                     nation, and (2) petitioner’s bankruptcy estate’s 1984 NOLs of
                                     $6,408,298.
                                        Respondent disagrees, primarily contending that, notwith-
                                     standing section 1398(i), petitioners are not entitled to those
                                     tax attributes because the joint motion, which the bank-
                                     ruptcy court by order approved on September 30, 1993,
                                     expressly stated that no tax attributes of petitioner’s bank-
                                     ruptcy estate survived upon its termination as of October 10,
                                     1985. He further argues that, even if the joint motion did not
                                     extinguish the tax attributes of petitioner’s bankruptcy
                                     estate, petitioners have not ‘‘1) shown how they could be used
                                     by petitioners; 2) proven that any allowable NOL carryovers
                                     did not expire either before or during the taxable years in
                                     question; or, 3) shown that the carryovers were not reduced
                                     became the owner of all of the interests in Chopin and MCLP (which the corporations had
                                     owned), which caused the partnerships to terminate pursuant to sec. 708(b)(1)(A) and petitioner
                                     to receive a constructive final liquidating distribution. (2) Under the plan’s substantive consoli-
                                     dation provision, the debtors were treated as a single economic unit and their property treated
                                     as common assets, which, upon assignment to the MCLT, resulted in the liquidation for tax pur-
                                     poses of the corporate and partnership debtors, and petitioner, as the ‘‘single common element
                                     of interest, control and ownership of all five debtors’’, became, on October 10, 1985, the sole
                                     owner of the property vested in the MCLT. Petitioners acknowledge, however, that their argu-
                                     ment depends upon our finding that the MCLT was a grantor trust as to petitioner. Because
                                     we have not, we need not address that argument. Consequently, we also need not address the
                                     parties’ disagreement as to whether Holywell indeed liquidated for tax purposes on October 10,
                                     1985.




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                                     (418)                           GOULD v. COMMISSIONER                                       441


                                     by any cancellation of indebtedness income exclusions under
                                     Code section 108.’’
                                        As described supra section I.A.2.a.(1)(b) of this report, the
                                     filing of an individual’s voluntary petition in a chapter 11
                                     bankruptcy creates a new taxable entity (the bankruptcy
                                     estate) for Federal tax purposes, separate from the individual
                                     debtor. Sec. 1398. The bankruptcy estate succeeds to and
                                     takes into account certain tax attributes of the individual
                                     debtor (e.g., NOL carryovers) determined as of the first day of
                                     the individual debtor’s taxable year in which the chapter 11
                                     bankruptcy commences. Sec. 1398(g)(1). Thus, the bank-
                                     ruptcy estate succeeds only to those NOLs, as determined
                                     under section 172, generated before the year in which the
                                     individual debtor files for bankruptcy. Sec. 1398(g)(1); Wil-
                                     liams v. Commissioner, 123 T.C. at 150. ‘‘The NOLs as deter-
                                     mined by a calendar year individual debtor, as of January 1
                                     of the year the debtor files a bankruptcy petition, go to the
                                     bankruptcy estate for its exclusive use for the benefit of the
                                     creditors on the commencement date.’’ Benton v. Commis-
                                     sioner, 122 T.C. 353, 359 (2004).
                                        Upon termination of the bankruptcy estate, the individual
                                     debtor succeeds to and takes into account, among other tax
                                     attributes, unexpired and unused NOL carryovers of the
                                     bankruptcy estate. Sec. 1398(i); Williams v. Commissioner,
                                     123 T.C. at 151. That includes both remaining NOLs that the
                                     bankruptcy estate succeeded to under section 1398(g)(1) and
                                     unused tax attributes accumulated by the operation of the
                                     bankruptcy estate. See Benton v. Commissioner, 122 T.C. at
                                     358. Before passing to the individual debtor, however, those
                                     NOL carryovers are reduced by the amount of discharge of
                                     indebtedness income excluded from the debtor’s income
                                     under section 108(a). Sec. 108(b)(1), (2)(A), (d)(8). Income
                                     from discharge of indebtedness is excluded from gross income
                                     if ‘‘the discharge occurs in a title 11 case’’. Sec. 108(a)(1)(A).
                                        Petitioners dismiss the joint motion on the grounds Mr.
                                     Gould was not a party to the agreement embodied therein,
                                     he did not sign it, ‘‘[i]t doesn’t even mention [him]’’, and ‘‘[i]t
                                     likely wasn’t even intended to apply to him.’’ While, tech-
                                     nically, those claims may be true, they are beside the point.
                                     The joint motion addresses the exhaustion of tax attributes
                                     of petitioner’s bankruptcy estate (not the exhaustion of any
                                     of his tax attributes). The joint motion was not self-executing




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                                     442                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     but was put before the bankruptcy court, which, according to
                                     its order of September 30, 1993, approving the settlement
                                     embodied in the motion, notified all parties in interest of the
                                     motion, held a hearing on the motion, and ‘‘considered the
                                     objections of Debtor[ ] Theodore B. Gould’’. Petitioner
                                     appealed the order to the U.S. District Court for the
                                     Southern District of Florida and the U.S. Court of Appeals
                                     for the Eleventh Circuit, both of which affirmed. See
                                     Holywell Corp. v. Smith, 208 F.3d 1009 (11th Cir. 2000)
                                     (unpublished, table); see also Gould v. United States, 229
                                     F.3d 1142 (4th Cir. 2000) (unpublished, table); Holywell
                                     Corp. v. Bank of New York (In re Holywell Corp.), 177 B.R.
                                     991 (S.D. Fla. 1995), aff ’d without published opinion, 95 F.3d
                                     57 (11th Cir. 1996). Mr. Gould, as debtor, may succeed only
                                     to the tax attributes of his bankruptcy estate remaining in
                                     the estate at its termination. See sec. 1398(i). And as of
                                     October 10, 1985, 29 according to the settlement embodied in
                                     the joint motion, approved by the bankruptcy court, the tax
                                     attributes of Mr. Gould’s bankruptcy estate were exhausted.
                                     Petitioners have not showed us any ambiguity in the joint
                                     motion or in the bankruptcy court’s order, nor have they con-
                                     vinced us that the bankruptcy court lacked authority to
                                     grant the motion, with its stated direct consequence for peti-
                                     tioner’s bankruptcy estate and its unstated indirect con-
                                     sequence for him. There were, therefore, as of October 10,
                                     1985, no tax attributes of his bankruptcy estate to which
                                     petitioner, as debtor, could succeed. He, therefore, succeeded
                                     to none; in particular, he succeeded to no NOL. We find
                                     accordingly.
                                        Alternatively, respondent argues that petitioners have
                                     failed to prove that any available NOL carryovers existed as
                                     of October 10, 1985. 30 Petitioners argue that upon peti-
                                     tioner’s bankruptcy estate’s termination, petitioner succeeded
                                     to NOL carryovers of $18,180,307, which included $11,722,009
                                     of his NOL carryovers to which his bankruptcy estate had
                                     succeeded on January 1, 1984, and $6,408,298 of NOLs gen-
                                     erated during bankruptcy. Petitioners assert that petitioner
                                       29 The parties do not agree on the date of the termination of petitioner’s bankruptcy estate.

                                     However, because they anchor their respective arguments upon the date of October 10, 1985,
                                     we focus on that date in our analysis.
                                       30 Respondent bearing the burden with respect to fraud to prove by clear and convincing evi-

                                     dence an underpayment in tax, we assume he makes this argument should we reject his first
                                     argument and, as with 2002, should the period of limitations not be an issue.




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                                     (418)                           GOULD v. COMMISSIONER                                       443


                                     is therefore entitled to carry over $18,180,307 of NOLs to the
                                     years at issue, reducing his tax liability for those years
                                     accordingly.
                                        The record contains no evidence reliably establishing the
                                     amounts of NOLs held by petitioner’s bankruptcy estate or
                                     that the estate did not exhaust those losses as of October 10,
                                     1985. The only documentary evidence is petitioners’ self-pre-
                                     pared ‘‘Net Operating Loss Worksheet’’. The worksheet
                                     details petitioners’ NOLs beginning in 1982 and ends in 2003,
                                     but petitioners acknowledge that it does not attempt ‘‘to
                                     obtain a precise figure’’ as to petitioner’s losses for tax years
                                     1985–2002. The worksheet indicates that ‘‘Petitioner NOL
                                     Carryovers to 1984’’ and ‘‘1984 NOL of Bankruptcy Estate’’
                                     were $11,772,009 and $6,408,298, respectively, identifying as
                                     its source respondent’s RAR issued to the bankruptcy estate
                                     for taxable years ending December 31, 1984, and October 10,
                                     1985. That same RAR, however, indicated that the entire
                                     $18,180,307 of NOL carryovers was absorbed to offset taxable
                                     income in that later year and, therefore concluded: ‘‘There is
                                     no carryover to the debtor of any NOL from the estate’’. Peti-
                                     tioners have introduced no evidence, and indeed we find none
                                     in the record, proving otherwise. Petitioner’s bankruptcy
                                     estate did not file a return for tax year ending October 10,
                                     1985, and petitioners failed to proffer evidence as to income
                                     that the estate may have had during that taxable year. 31
                                        Petitioners have failed to prove that petitioner’s bank-
                                     ruptcy estate had an NOL for its tax year ending on October
                                     10, 1985, to which petitioner could succeed and which he
                                     could carry over to 1995–2002. Accordingly, petitioners have
                                     failed to prove that they are entitled to claim, on their 1995–
                                     2002 joint income tax returns, NOL carryovers of $18,180,307.
                                           b. Capital Loss Deductions
                                        Petitioners next assert that they are entitled to claim cap-
                                     ital loss carryover deductions of $3,000 for 1995–2002. They
                                     argue that, in 1991, petitioner incurred a $664,771 short-
                                     term bad debt capital loss and a $376,719 long-term capital
                                       31 Because we find that petitioners failed to prove the existence of available NOL carryovers

                                     of the bankruptcy estate as of October 10, 1985, we need not consider respondent’s additional
                                     arguments; i.e., that petitioners failed to prove that any allowable NOL carryovers did not ex-
                                     pire either before or during the taxable year in question and that they failed to show that the
                                     carryovers were not reduced by any cancellation of indebtedness income under sec. 108.




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                                     444                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     loss from investments in debt and common stock, respec-
                                     tively, in TBG Associates, Ltd. They contend that they (1)
                                     reported a net capital loss of $1,041,490 on the Schedule D,
                                     Capital Gains and Losses, attached to their joint 1991 Form
                                     1040, (2) deducted $3,000 of that loss on their 1991 Form
                                     1040, and (3) properly carried forward the excess capital loss,
                                     offsetting ‘‘$3,000 of the capital loss carryover from 1991
                                     against their taxable income for each year from 1992 through
                                     2002.’’ Finally, they argue that respondent examined their
                                     1991 tax return and, on May 10, 1994, mailed to petitioners
                                     a ‘‘no adjustments letter’’ regarding that taxable year.
                                     Respondent argues that petitioners have provided ‘‘scant evi-
                                     dence’’ in support of their claimed capital loss deductions. 32
                                        Generally, taxpayers may claim as a deduction ‘‘any loss
                                     sustained during the taxable year and not compensated for
                                     by insurance or otherwise.’’ Sec. 165(a). Losses from sales or
                                     exchanges of capital assets, however, are allowed only to the
                                     extent prescribed in sections 1211 and 1212. Sec. 165(f).
                                     Under those limitations, noncorporate taxpayers must first
                                     offset capital losses against capital gains; if aggregate capital
                                     losses exceed aggregate capital gains, taxpayers may deduct
                                     up to $3,000 of the excess against ordinary income. Sec.
                                     1211(b). Capital losses exceeding the section 1211(b) limita-
                                     tion may then be carried over to subsequent tax years. Sec.
                                     1212(b).
                                        There is nothing in the record, other than petitioners’ 1991
                                     Form 1040, on which they reported the capital loss, and peti-
                                     tioner’s self-serving testimony, to substantiate that he
                                     incurred a capital loss for 1991 that could be carried to 1995–
                                     2002. A taxpayer’s returns alone do not substantiate deduc-
                                     tions or losses. Wilkinson v. Commissioner, 71 T.C. 633, 639
                                     (1979); Thompson v. Commissioner, T.C. Memo. 2011–291.
                                     Absent corroborating evidence, petitioners’ returns do not
                                     substantiate their entitlement to deduct the 1995–2002 cap-
                                     ital loss carryovers.
                                        On brief, petitioners state: ‘‘Respondent examined Peti-
                                     tioners’ 1991 tax return. On May 10, 1994[,] Respondent
                                     mailed Petitioners a ‘no adjustments letter’ for their 1991
                                     taxable year.’’ To the extent that petitioners argue that the
                                       32 Apparently, respondent does not make that argument to show that, to prove fraud, he has

                                     proven an underpayment in tax by clear and convincing evidence. See supra note 30.




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                                     (418)                           GOULD v. COMMISSIONER                                       445


                                     letter indicates respondent’s acknowledgment that the 1991
                                     capital loss was proper, we disagree. The no-change letter did
                                     not contain a determination by respondent that petitioner’s
                                     1991 capital loss was properly reported, the basis of peti-
                                     tioners’ claim to their entitlement to deduct capital loss
                                     carryovers for tax years 1995–2002. In the no-change letter,
                                     respondent merely notified petitioners that respondent had
                                     ‘‘examined your tax return for the above period and made no
                                     changes to the tax you reported.’’ Petitioners have made no
                                     claim of estoppel with respect to the no-change letter. Nor
                                     have petitioners explained why respondent was barred from
                                     making changes with respect to 1991 after issuing the no-
                                     change letter for that year. See Opine Timber Co. v. Commis-
                                     sioner, 64 T.C. 700, 713 (1975) (Commissioner’s letter
                                     accepting return does not bar later determination of a defi-
                                     ciency), aff ’d without published opinion, 552 F.2d 368 (5th
                                     Cir. 1977); Vlock v. Commissioner, T.C. Memo. 2010–3.
                                     Respondent is not bound by representations in the no-change
                                     letter. Gale v. Commissioner, T.C. Memo. 2002–54.
                                        Because petitioners have not proffered evidence to substan-
                                     tiate their claimed 1991 long- and short-term capital losses,
                                     we find that petitioners are not entitled to the claimed 1995–
                                     2002 capital loss carryover deductions. 33
                                           c. Conclusion
                                        Respondent has shown by clear and convincing evidence
                                     that petitioners have underpayments of tax for 1995–2002.
                                     Petitioners’ joint Federal income tax returns for those years
                                     show zero tax liability for each year in large part because of
                                     NOL carryovers that were sufficient to eliminate any tax that
                                     would otherwise be due. Respondent has proven that peti-
                                     tioners are not entitled to those NOL carryovers for 1995–
                                     2002. Moreover, petitioners make no argument that they
                                     have unclaimed deductions or credits that would reduce their
                                     tax liability for each of those years. Petitioners have not
                                     shown their entitlement to deduct any capital loss
                                     carryovers. To the extent we have jurisdiction to do so, we
                                     sustain respondent’s adjustments resulting from his disallow-
                                     ance of the NOL and capital loss carryover deductions.
                                        33 We find that petitioners have failed to substantiate the claimed capital loss and, thus, do

                                     not address respondent’s alternative argument that petitioners failed to reduce the total amount
                                     of capital loss carryovers for the $3,000 excess they had claimed each prior year.




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                                     446                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                           3. Fraudulent Intent
                                        The second prong of the fraud test requires the Commis-
                                     sioner to prove that, for each year in issue, at least some por-
                                     tion of the taxpayer’s underpayment of tax is due to fraud.
                                     Fraud for that purpose is defined as intentional wrongdoing,
                                     with the specific purpose of avoiding a tax believed to be
                                     owed. DiLeo v. Commissioner, 96 T.C. at 874. The Commis-
                                     sioner must thus prove that the taxpayer intended to evade
                                     tax believed to be owing by conduct intended to conceal, mis-
                                     lead, or otherwise prevent the collection of tax. Id. A fraudu-
                                     lent state of mind may be proved by circumstantial evidence
                                     because direct proof of the taxpayer’s intent is rarely avail-
                                     able. Id.
                                        Courts have developed a nonexclusive list of factors that
                                     demonstrate fraudulent intent. Those badges of fraud
                                     include: (1) understating income, (2) maintaining inadequate
                                     records, (3) implausible or inconsistent explanations of
                                     behavior, (4) concealment of assets, (5) failing to cooperate
                                     with tax authorities, (6) engaging in illegal activities, (7) an
                                     intent to mislead, (8) lack of credibility of the taxpayer’s
                                     testimony, (9) filing false documents, (10) failing to file tax
                                     returns, and (11) dealing in cash. Bradford v. Commissioner,
                                     796 F.2d 303, 307–308 (9th Cir. 1986), aff ’g T.C. Memo.
                                     1984–601; Scott v. Commissioner, T.C. Memo. 2012–65.
                                     ‘‘Although no single factor is necessarily sufficient to estab-
                                     lish fraud, a combination of factors is more likely to con-
                                     stitute persuasive evidence.’’ Scott v. Commissioner, T.C.
                                     Memo. 2012–65. The taxpayer’s intelligence, education, and
                                     tax expertise are also relevant in determining fraudulent
                                     intent. Id.
                                        We find that, for 1995–2002, respondent has failed to pro-
                                     vide clear and convincing evidence that petitioners filed
                                     fraudulent tax returns.
                                           a. Understatement of Income
                                       An understatement of income can be shown by an over-
                                     statement of deductions. E.g., Daoud v. Commissioner, T.C.
                                     Memo. 2010–282; see Hicks Co. v. Commissioner, 56 T.C. 982,
                                     1019 (1971), aff ’d, 470 F.2d 87 (1st Cir. 1972). Petitioners
                                     claimed significant deduction overstatements, namely (1) NOL
                                     deductions of $188,305, $75,355, $39,848, $63,002, $97,478,




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                                     (418)                           GOULD v. COMMISSIONER                                       447


                                     $351,331, $105,822, and $121,885 for 1995, 1996, 1997, 1998,
                                     1999, 2000, 2001, and 2002, respectively, and (2) capital loss
                                     carryovers of $1,041,490 from which they claimed capital loss
                                     deductions of $3,000 for each year from 1995–2002. For those
                                     years, they understated their income.
                                           b. Inadequate Maintenance of Records
                                        Taxpayers are required to maintain records sufficient to
                                     establish the amounts of allowable deductions and to enable
                                     the Commissioner to determine the correct tax liability. Sec.
                                     6001. Respondent disallowed the NOL and capital loss deduc-
                                     tions for, among other reasons, lack of substantiation. The
                                     only records in evidence are petitioner’s amended 1995 Form
                                     1040 and 1996–2002 Forms 1040, on which they claimed
                                     those deductions, which as discussed supra, absent sup-
                                     porting evidence, provide insufficient substantiation. All but
                                     one of those Forms 1040 include a self-prepared schedule of
                                     NOLs carried over and NOLs used in prior taxable years. We
                                     have little confidence in the schedules’ accuracy because they
                                     do not include supporting evidence as to the origin, or use in
                                     pre-1995 taxable years, of the NOL carryovers, they do not
                                     account for the expiration of the carryovers, and at least two
                                     of the schedules provide inconsistent amounts of NOLs and
                                     resulting cumulative carryovers. Although the record con-
                                     tains a copy of a letter from petitioner to the Appeals officer
                                     assigned to the deficiency case in which petitioner refers to
                                     ‘‘source documents from which [his] net operating losses and
                                     capital losses can be determined’’, petitioners neither intro-
                                     duced those documents at trial nor identified any of the
                                     stipulated exhibits as the documents referred to in the letter.
                                        Petitioners attributed the NOL carryovers to losses incurred
                                     by Holywell, MCLP, MCJV, and Chopin. They introduced, how-
                                     ever, only some of those entities’ tax returns for some of the
                                     examination years, which provide insufficient substantiation.
                                        Petitioner also testified that the capital loss carryover
                                     deductions of $3,000 for 1995–2002 arose from a 1991
                                     $664,771 short-term bad debt capital loss and a $376,719
                                     long-term capital loss from investments in debt and common
                                     stock, respectively, in TBG Associates, Ltd. He offered no
                                     records to support that testimony.




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                                     448                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                       We find petitioners’ failure to keep or produce adequate
                                     records to support their return positions to be an indicium of
                                     fraud.
                                           c. Failure To Cooperate With Tax Authorities
                                        We disagree, however, with respondent’s argument that
                                     petitioner, in a further attempt to evade Federal income tax,
                                     failed to cooperate with tax authorities. Respondent asserts
                                     primarily that petitioner, in an effort to evade tax due, often
                                     sought retribution against Government employees who dis-
                                     agreed with him. Respondent specifically identifies, among
                                     other things, (1) petitioner’s commencing an action in the
                                     U.S. District Court for the Western District of Virginia
                                     against Mr. Smith and BNY in which he sought damages, (2)
                                     petitioner’s attempt to persuade the U.S. Department of Jus-
                                     tice to prosecute BNY for fraud, and (3) petitioner’s request
                                     that the IRS’ criminal investigation unit investigate Mr.
                                     Smith and BNY.
                                        The aforementioned efforts, however, were not directed
                                     towards Government employees and, more significantly, they
                                     were not directed against tax authorities. Thus, they do not
                                     furnish evidence of an attempt to prevent the collection of
                                     tax. Respondent does not allege, for example, that petitioner
                                     refused to comply with document requests or failed to attend
                                     scheduled meetings with respondent or otherwise actively
                                     impeded the audit. To the contrary, petitioner agreed with
                                     respondent’s request to extend the period of limitations for
                                     assessment for taxable year 2002 so that a more complete
                                     audit could be performed.
                                           d. Intent To Mislead
                                       We further disagree that petitioner made misleading state-
                                     ments to an investigating agent, an indicium of fraud.
                                     Respondent argues that petitioner filed ‘‘amended’’ Forms
                                     1041 for the MCLT with the intent to mislead respondent into
                                     making tax assessments against the trust and ‘‘then [to] mis-
                                     lead respondent into thinking that any taxes collected in
                                     such manner would serve to eliminate his tax liability’’.
                                       Respondent has not convinced us that petitioners fraudu-
                                     lently filed the 1997 and 1998 Forms 1041. Petitioners argue
                                     that they filed amended returns because the original 1997




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                                     (418)                           GOULD v. COMMISSIONER                                       449


                                     Form 1041 was inconsistent with MCJV’s 1997 Schedule K–
                                     1, and the original 1998 Form 1041 failed to report discharge
                                     of indebtedness income arising from the discharge in that
                                     year of Mr. Smith’s outstanding obligation on the trustee cer-
                                     tificate. Respondent has provided no evidence to contradict
                                     petitioner’s assertion. In addition, petitioner did not mislead
                                     respondent into accepting those assessments as estimated
                                     tax payments creditable on his personal tax returns. Even
                                     before respondent had assessed those amounts, petitioner
                                     disclosed to respondent his intention of claiming on his per-
                                     sonal tax return taxes owed by, but not collected from, the
                                     MCLT for tax year 1997. To their 1998 Form 1040, petitioners
                                     attached a disclosure form. That disclosure form appears to
                                     reflect petitioners’ belief, albeit erroneous, that they were
                                     entitled to credit on their personal return $22,871,042 for
                                     taxes that had not yet, but should have, been collected from
                                     the MCLT for tax year ended December 31, 1997. Disclosure
                                     forms attached to petitioners’ 2000 and 2001 Forms 1040
                                     appear to reflect petitioners’ continuing belief that they were
                                     entitled to credit on their personal returns for taxes that had
                                     not yet, but should have, been collected from the trust.
                                        Petitioner disclosed to respondent both his reason for filing
                                     the MCLT’s amended Forms 1041 and that, although claimed
                                     as estimated tax payments, the resulting assessments
                                     against the MCLT had not yet been paid. Given the disclosure,
                                     we cannot say that petitioners misled respondent in order to
                                     lower their tax due.
                                           e. Filing False Documents
                                        Respondent alleges that petitioner ‘‘claimed that there was
                                     a new [Holywell] entity [when he filed Holywell’s
                                     postliquidation tax returns]; however, he continued to use
                                     the same incorporation date and make claims to the $10 mil-
                                     lion paid by the trustee on behalf of Holywell corporation.’’
                                     Respondent concludes that ‘‘either petitioner continued to file
                                     returns for the Delaware-incorporated Holywell or petitioner
                                     claimed payments on the Virginia-incorporated Holywell that
                                     were not made and listed the wrong incorporation date for
                                     the Virginia-incorporated Holywell’’, either of which actions
                                     amounts to filing false documents.




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                                     450                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                        We find that respondent has failed to prove by clear and
                                     convincing evidence that petitioner filed false documents
                                     with the purpose of avoiding his tax obligation. As stated
                                     supra, respondent must prove that, for 1995, 1996, 1997,
                                     1998, 1999, 2000, 2001, and 2002, at least some portion of
                                     each of petitioners’ underpayments of tax is due to fraud.
                                     Even if we were to find that petitioner falsely filed tax
                                     returns for Holywell after its liquidation or falsely claimed a
                                     refund for the Virginia-incorporated Holywell, such actions
                                     do not relate to petitioners’ underpayments of tax for 1995–
                                     2002. In other words, petitioners’ underpayments of tax are
                                     not due to the filing of false documents as alleged by
                                     respondent.
                                        Respondent also asserts that, because he lacked the
                                     authority or fiduciary capacity to do so, petitioner filed false
                                     ‘‘amended’’ Forms 1041 on behalf of the MCLT. The filing of
                                     the Forms 1041 by themselves did not cause underpayments
                                     of tax for 1995–2002.
                                           f. Implausible or Inconsistent Explanations of Behavior
                                        Respondent argues that petitioner’s inconsistent expla-
                                     nations of behavior include: (1) filing post-1985 Federal tax
                                     returns for a Virginia-incorporated Holywell corporation but
                                     using the ‘‘incorporation date of the Delaware Holywell’’ on
                                     its tax returns and claiming refunds on behalf of Holywell,
                                     an entity that petitioner acknowledged is a separate taxable
                                     entity, (2) claiming that the MCLT is a grantor trust but
                                     reporting only losses and tax payments but not income
                                     attributable to the trust, and (3) providing contradictory
                                     statements as to his entitlement to MCJV’s losses.
                                        As explained supra, petitioners’ 1995–2002 underpayments
                                     of tax are not due to the filing of those Federal tax returns.
                                     Thus, whether or not inconsistent, petitioner’s explanations
                                     for his behavior do not factor into our analysis.
                                        Most of the disallowed NOLs originate from petitioners’
                                     carryover of losses of the MCLT. Petitioner’s explanations
                                     were not only implausible but nonexistent as to why, after
                                     taking the position that the MCLT was a grantor trust, peti-
                                     tioner claimed on his personal tax returns his portions of its
                                     losses but failed to report the trust’s income. He did not
                                     attempt to explain this discrepancy. Petitioner has dem-




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                                     (418)                            GOULD v. COMMISSIONER                                       451


                                     onstrated extensive knowledge of the grantor trust rules and
                                     is aware that a grantor of a trust must take into account
                                     items of both income and deduction. Petitioners’ documents
                                     and attachments to their Forms 1040 have proved to us that
                                     petitioner is extremely well versed in these rules and we
                                     cannot attribute his failing to include attributable income to
                                     a mistake of a question of law. We can only deduce from peti-
                                     tioner’s implausible explanation (or lack thereof) that
                                     petitioners selectively reported only the tax benefits associ-
                                     ated with a grantor trust in order to evade tax petitioner
                                     believed (incorrectly) to be due. We find that petitioner’s
                                     implausible explanation of behavior is an indicium of fraud.
                                        Although petitioner did provide inconsistent explanations
                                     as to his entitlement to deduct losses from MCJV, we do not
                                     find that those explanations are evidence of fraudulent
                                     intent. In a 1993 deposition in a previous proceeding, when
                                     asked about his 1989 tax return in which he listed on the
                                     Schedule E, Supplemental Income and Loss, losses from
                                     MCJV and MCLP, petitioner responded: ‘‘That’s a return that
                                     has to be amended. * * * Because my limited partnership
                                     interests and my joint venture interests have been held by
                                     the courts to have been assigned to the Miami Center.’’ The
                                     deposition continued as follows:
                                           Q. So, in what way will you amend the return?
                                           A. Eliminate the losses.

                                                               *   *    *    *   *    *    *
                                       A. What I am saying is we will amend the losses belonging to me as the
                                     beneficial owner of that property, of the joint venture interest. When the
                                     trust is dissolved, those losses will be available to me.
                                       Q. But not in 1989?
                                       A. But not in 1989.

                                     Petitioner explained this discrepancy by testifying: ‘‘I was
                                     sworn under oath and the question in response to which was
                                     a question of law, right, to which I answered, I was mis-
                                     taken.’’ His entitlement to the losses is a question of law, not
                                     of fact, and petitioner later changed his legal position as to
                                     the issue. We do not consider a modified legal position by
                                     itself an inconsistent explanation of behavior.
                                        We are thus faced with explanations of behavior that both
                                     evidence his fraudulent intent and do not. However, because
                                     of petitioner’s demonstrated knowledge of the grantor trust




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                                     452                 139 UNITED STATES TAX COURT REPORTS                                       (418)


                                     rules and his obvious selective reporting in order to obtain a
                                     substantial tax benefit, we conclude that, on the whole, peti-
                                     tioner provided implausible explanations of his behavior in
                                     order to evade tax known to be owing.
                                           g. Conclusion
                                        After considering the entire record and the factors dis-
                                     cussed supra, we find that, for 1995–2002, respondent failed
                                     to provide clear and convincing evidence that petitioners filed
                                     fraudulent tax returns. 34 While petitioner’s implausible
                                     explanation as to why he claimed losses but did not report
                                     income of the MCLT strongly indicates to us his intent to
                                     evade tax believed to be owed, no single factor is necessarily
                                     sufficient to establish fraud. Even when considered in com-
                                     bination with his understatements of his 1995–2002 income
                                     and his failure to maintain adequate records for those years,
                                     we cannot conclude that these indicia evidence fraud in the
                                     face of the aforementioned indicia that indicate otherwise.
                                     Specifically, petitioner’s cooperation with tax authorities and
                                     his disclosure on his Forms 1040 of the reasons for claiming
                                     as estimated tax payments the unpaid assessments against
                                     the MCLT’s 1997 and 1998 tax years lead us to conclude that,
                                     although incorrect in his tax positions, petitioner was not
                                     attempting to fraudulently lower his tax due.
                                        Accordingly, the extended limitations period provided in
                                     section 6501(c) is inapplicable, and respondent’s determina-
                                     tions and adjustments relating to taxable years 1995–2001
                                     are barred.




                                        34 Respondent also argues that petitioners’ fraudulent intent is evidenced by petitioner’s par-

                                     ticipation in illegal activities, specifically ‘‘purloin[ing and selling] concrete pumps belonging to
                                     the trust’’ and refusing to turn over the proceeds. Respondent further asserts that petitioner’s
                                     behavior has been ‘‘borderline illegal’’ as evidenced by numerous findings of contempt by the
                                     bankruptcy court and one finding of contempt by a U.S. District Court. These activities, how-
                                     ever, do not establish an attempt to avoid taxes believed to be owing. On brief, petitioners, who
                                     bear the burden of proof as to that issue, argue that the sole source of the capital loss and re-
                                     lated carryovers was petitioner’s investment in TBG Associates, Ltd. The sale of concrete pumps
                                     belonging to the MCLT, therefore, does not provide a basis for the claimed capital loss
                                     carryovers and consequently does not evidence petitioner’s attempt to evade tax believed to be
                                     owing.




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                                     (418)                           GOULD v. COMMISSIONER                                       453


                                           B. Deficiencies in Tax
                                           1. Introduction
                                        Because of the absence of fraud that would extend the
                                     three-year period of limitations, pursuant to section 6501(c),
                                     respondent may not assess or collect deficiencies in peti-
                                     tioners’ 1995–2001 Federal income tax. Respondent may,
                                     however, assess and collect any deficiency in petitioners’
                                     2002 Federal income tax. Petitioners bear the burden of
                                     proof. See Rule 142(a). 35
                                           2. Disallowed Deductions
                                        Respondent disallowed for lack of substantiation $121,885
                                     and $3,000 deducted as net operating and capital losses,
                                     respectively, for 2002. As we found supra section I.A.2. of
                                     this report, petitioners have failed to establish: (1) their
                                     entitlement to deduct the NOLs of Holywell, MCC, MCLP,
                                     Chopin, MCJV, and petitioner’s bankruptcy estate, (2) that
                                     they incurred a capital loss for 1991, and (3) the amount of
                                     any such loss that may be carried over to 2002.
                                        Petitioners have failed to prove their entitlement to any of
                                     the disallowed deductions. Therefore, we sustain respond-
                                     ent’s adjustments disallowing the claimed NOL deduction and
                                     the capital loss deduction of $121,885 and $3,000, respec-
                                     tively, for 2002.
                                           3. Credit or Refund of Overpayment of Tax
                                        Petitioners next argue that they are ‘‘entitled to a credit or
                                     a refund of [a $13,361,000] * * * overpayment of tax on
                                     income attributable to property held by the Liquidating
                                     Trust because the Liquidating Trust is a grantor trust and
                                     * * * [petitioner] is treated as the owner thereof ’’. Peti-
                                     tioners claim that the $13,361,000 overpayment of tax con-
                                     sists of (1) $13 million in tax payments made, in 1992 and
                                     1993, under the joint motion by the trustee to the IRS on
                                     behalf of the MCLT, and (2) $361,000 in additional payments
                                     made by the trustee to the IRS on behalf of Holywell for tax-
                                       35 Petitioners make no argument that, pursuant to sec. 7491(a), the burden shifts to respond-

                                     ent. In any event, the record establishes that petitioners do not satisfy the preconditions found
                                     in sec. 7491(a)(2) for shifting the burden; e.g., they failed to maintain records and they failed
                                     to cooperate with the Secretary in his examinations and investigation, both as required by sec.
                                     7491(a)(2)(B).




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                                     454                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     able years after July 31, 1986, of which $327,000 was for tax-
                                     able years covered under the joint motion. They assert that,
                                     although Mr. Smith remitted these payments, petitioner
                                     should be treated as the taxpayer who made payment
                                     because ‘‘Petitioner was the owner of the Liquidating Trust
                                     for tax purposes and, as such, was required to include items
                                     of income, deduction and credit of the Liquidating Trust on
                                     his personal tax return’’. They allege that the entire
                                     $13,361,000 in tax payments, which they reported as esti-
                                     mated tax payments on their tax returns, constituted an
                                     overpayment of tax because, for 1985–2002, they either
                                     incurred a loss or had unexpired NOL carryovers in excess of
                                     income. Petitioners conclude that they are thus entitled to a
                                     refund of the balance. 36
                                        At trial, petitioner conceded that he is not entitled to a
                                     credit or refund of those payments if this Court concludes
                                     that he was not the grantor or the beneficial owner of the
                                     trust. Indeed, as detailed above, petitioners’ arguments on
                                     brief rest upon the assertion that the MCLT was a grantor
                                     trust and petitioner its grantor such that items of income,
                                     deduction, and credit ‘‘passed through to Petitioner and Peti-
                                     tioner is entitled to a credit or a refund of amounts paid by
                                     the Liquidating Trustee to Respondent.’’
                                        We accept petitioner’s concession. Because of our finding
                                     that the MCLT is not a grantor trust as to petitioner, peti-
                                     tioner is not entitled to a credit or refund for $13 million in
                                     payments made, in 1992 and 1993, by the trustee to the IRS
                                     on behalf of the MCLT and for $361,000 37 in payments made
                                     by the trustee to the IRS on behalf of Holywell for taxable
                                     years after July 31, 1986. 38
                                        36 Petitioners also assert that petitioner must be treated for tax purposes as the one who made

                                     $13,361,000 in tax payments because Holywell liquidated for tax purposes when all its property
                                     vested in the MCLT and the debtors were substantively consolidated on October 10, 1985. Be-
                                     cause of our finding discussed below, we need not consider petitioners’ alternative argument.
                                        37 We are unconvinced as to the amount of the overpayment claimed by petitioners. Petitioners

                                     assert that Mr. Smith remitted $361,000 in estimated tax payments on behalf of Holywell, but
                                     they fail to produce evidence of those payments. The only evidence in the record of payments
                                     to the IRS on behalf of Holywell are transcripts showing ‘‘ESTIMATED TAX/FEDERAL TAX
                                     DEPOSIT[S]’’ of $34,316, $75,000, and $20,000 on July 15, 1992, January 15, 1993, and April
                                     15, 1993, respectively. Even if remitted by Mr. Smith, these payments do not fully account for
                                     the $361,000 in estimated tax payments claimed by petitioners.
                                        38 On brief, respondent argues that, even if this Court found that the MCLT was a grantor

                                     trust as to petitioner, petitioners’ claim for a refund or credit for amounts paid by the liqui-
                                     dating trustee in 1992 and 1993 is barred as untimely pursuant to sec. 6511. In the light of
                                     petitioner’s concession at trial and our finding that the MCLT is not a grantor trust as to peti-
                                     tioner, we need not address that issue.




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                                     (418)                           GOULD v. COMMISSIONER                                       455


                                           4. Abatement of Assessments
                                        Finally, petitioners argue that respondent improperly
                                     abated assessments of income tax against the MCLT for tax-
                                     able years 1997 and 1998. Upon receipt of the MCLT’s
                                     amended 1997 and 1998 Forms 1041, respondent assessed
                                     the MCLT’s 1997 tax liability of $22,871,041 and its 1998 tax
                                     liability of $8,672,291. Petitioners reported those unpaid
                                     assessed amounts as estimated tax payments on their joint
                                     tax returns and applied a portion of those estimated tax pay-
                                     ments to their 2002 Form 1040. Respondent later abated the
                                     assessments.
                                        The Secretary is authorized to abate the unpaid portion of
                                     an assessment of any tax or liability in respect thereof that
                                     is, among other things, erroneously or illegally assessed. Sec.
                                     6404(a)(3). If an assessment is properly abated, the abate-
                                     ment entirely extinguishes the assessment. Becker v. IRS (In
                                     re Becker), 407 F.3d 89, 97 (2d Cir. 2005). On brief, the par-
                                     ties focus their arguments primarily on whether respondent’s
                                     abatement was of an erroneous assessment as defined under
                                     section 6404(a)(3).
                                        We lack jurisdiction to determine the propriety of respond-
                                     ent’s abatement of those assessments against the MCLT.
                                     Although it was not raised by either party, this Court may
                                     question jurisdiction at any time, even after the case has
                                     been tried and briefed. Smith v. Commissioner, 124 T.C. 36,
                                     40 (2005). It is well settled that in a deficiency case this
                                     Court lacks jurisdiction to provide relief other than to
                                     ‘‘redetermine the correct amount of the deficiency’’, sec.
                                     6214(a), and ‘‘may exercise jurisdiction only to the extent
                                     authorized by Congress’’, Estate of Gudie v. Commissioner,
                                     137 T.C. 165, 170 (2011). Petitioners’ abatement claim does
                                     not fall within our jurisdictional bounds. As we found supra
                                     section I.A.2.a.(1)(b) of this report, the MCLT is not a grantor
                                     trust as to petitioner; and therefore he is deprived of entitle-
                                     ment to report items of income, loss, and estimated tax pay-
                                     ments on his personal tax returns. Even if we were to exer-
                                     cise jurisdiction and find the assessments proper, petitioners
                                     may not claim on their 2002 tax return, as estimated tax
                                     payments applied from previous tax returns, any assessed
                                     and collected income taxes against the MCLT. Our determina-
                                     tion regarding the propriety of the assessments of tax against




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                                     456                 139 UNITED STATES TAX COURT REPORTS                                        (418)


                                     the MCLT would, therefore, not redetermine the correct
                                     amount of petitioners’ 2002 deficiency. We decline to adju-
                                     dicate the issue.
                                           C. Imposition of the Accuracy-Related Penalty 39
                                           1. Introduction
                                        Section 6662(a) and (b)(1)–(3) imposes an accuracy-related
                                     penalty in the amount of 20% of the portion of an under-
                                     payment of tax attributable to, among other things, neg-
                                     ligence or disregard of rules or regulations, any substantial
                                     understatement of income tax, or any substantial valuation
                                     misstatement. The accuracy-related penalty, however, does
                                     not apply to any part of an underpayment if it is shown that
                                     the taxpayer acted with reasonable cause and in good faith
                                     with respect to that portion. Sec. 6664(c)(1).
                                        The Commissioner bears the burden of production with
                                     respect to penalties. Sec. 7491(c). To meet that burden, he
                                     must produce evidence regarding the appropriateness of
                                     imposing the penalty. Higbee v. Commissioner, 116 T.C. 438,
                                     446 (2001). Once the Commissioner carries his burden, the
                                     burden of proof remains with the taxpayer, including the
                                     burden of proving that the penalties are inappropriate
                                     because of reasonable cause. Id.
                                        In the notice of deficiency, as an alternative to the fraud
                                     penalty under section 6663(a), respondent determined the
                                     accuracy-related penalty for tax year 2002 upon the grounds
                                     of substantial understatement of income tax and negligence.
                                     Only one accuracy-related penalty may be applied with
                                     respect to any given portion of an underpayment, even if that
                                     portion is subject to the penalty on more than one of the
                                     aforementioned grounds. Sec. 1.6662–2(c), Income Tax Regs.
                                           2. Substantial Understatement of Income Tax
                                        Section 6662(a) and (b)(2) imposes a 20% accuracy-related
                                     penalty on any portion of an underpayment of tax required
                                     to be shown on a return which is attributable to any substan-
                                     tial understatement of income tax. An ‘‘understatement of
                                       39 Although respondent determined the accuracy-related penalty in the notice of deficiency, he

                                     failed to address it in his opening brief; he did so, however, in his reply brief. Petitioners antici-
                                     pated the argument and addressed it in their opening brief. We do not consider respondent to
                                     have conceded the issue.




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                                     (418)                           GOULD v. COMMISSIONER                                       457


                                     income tax’’ generally means the excess of the amount of tax
                                     required to be shown on the return for the taxable year, over
                                     the amount of the tax imposed which is shown on the return.
                                     Sec. 6662(d)(2)(A). The understatement is deemed ‘‘substan-
                                     tial’’ if the amount of the understatement for the taxable
                                     year exceeds the greater of 10% of the tax required to be
                                     shown on the return for the taxable year or $5,000. Sec.
                                     6662(d)(1)(A).
                                        The amount of the understatement, however, is reduced by
                                     that portion of the understatement attributable to the tax
                                     treatment of any item (1) supported by substantial authority
                                     or (2) for which the relevant facts affecting the item’s tax
                                     treatment are adequately disclosed in the return or in a
                                     statement attached to the return and there is a reasonable
                                     basis for the tax treatment of such item. Sec. 6662(d)(2)(B).
                                     Adequate disclosure has no effect, therefore, where the
                                     return position lacks reasonable basis. Sec. 1.6662–3(c)(1),
                                     Income Tax Regs. Reasonable basis is a ‘‘relatively high
                                     standard of tax reporting’’ and is ‘‘not satisfied by a return
                                     position that is merely arguable or that is merely a colorable
                                     claim.’’ Sec. 1.6662–3(b)(3), Income Tax Regs.
                                        We have sustained respondent’s disallowance of the
                                     claimed NOL and capital loss deductions of $121,885 and
                                     $3,000, respectively, for tax year 2002. The resulting under-
                                     statement of income tax exceeds the greater of 10% of the tax
                                     required to be shown on the 2002 return ($4,109) or $5,000.
                                     Respondent has met his burden of production regarding the
                                     existence of a substantial understatement.
                                        Petitioners assert that they are not liable for the section
                                     6662(a) penalty on the ground of disregard of rules or regula-
                                     tions because they adequately disclosed their return position
                                     and the position ‘‘was sound in all respects’’. In support of
                                     their argument, petitioners urge us to adopt the following
                                     proposed finding: ‘‘The disclosures attached to Petitioners’
                                     tax returns explained the tax credits, net operating losses
                                     and net capital losses to which Petitioner believed he was
                                     entitled as the beneficial owner of the Liquidating Trust
                                     under the Supreme Court’s opinion in Holywell.’’
                                        Although petitioners raise this argument as a defense
                                     against the section 6662(a) penalty on the ground of dis-




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                                     458                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     regard of rules or regulations, 40 we deem them to have
                                     raised it in defense of the section 6662(a) penalty on the
                                     ground of substantial understatement of income tax. Because
                                     petitioners refer only to those NOLs attributable to the MCLT
                                     and not to those petitioner claimed, for 1985, as successor to
                                     his bankruptcy estate, we assume that they argue for a par-
                                     tial reduction in the amount of the understatement for 2002.
                                        We are unpersuaded by petitioners’ argument that
                                     Holywell Corp. v. Smith, 503 U.S. 47, provides a reasonable
                                     basis for their return position. As explained supra section
                                     I.A.2.a.(1)(a) of this report, the U.S. Supreme Court stated
                                     that it ‘‘fail[ed] to see how the respondents can characterize
                                     * * * [petitioner] as the grantor’’ of the MCLT, and the Court
                                     did not address whether petitioner was the trust’s beneficial
                                     owner. Id. at 57. We cannot conclude that petitioners meet
                                     the relatively high standard of tax reporting demanded by
                                     reasonable basis when their position is based on an opinion
                                     that is silent as to the issue. Further, petitioners assert that
                                     they incurred the 1991 capital loss from which the capital
                                     loss carryover in issue resulted from an investment in TBG
                                     Associates, Ltd. We do not see, and petitioners have not
                                     explained, the relevance of Holywell Corp. to that tax posi-
                                     tion.
                                        We find it curious that petitioners anchor their reasonable
                                     basis argument on a case that they assert holds that peti-
                                     tioner may claim deductions as beneficial owner of the MCLT
                                     when, in support of all other arguments made on brief, peti-
                                     tioners predicate their entitlement to those same loss
                                     carryovers on petitioner’s status as grantor. It may be that
                                     petitioners use the term ‘‘beneficial owner’’ interchangeably
                                     with that of ‘‘grantor’’. If they are asserting a different argu-
                                     ment, however, they have not shown any authority to sup-
                                     port that new contention. In any event, given our finding and
                                     accompanying discussion supra section I.A.2.a.(1)(b) of this
                                     report, that section 1.671–2(e), Income Tax Regs., fails to
                                     support petitioner’s tax position that he is grantor of the
                                     trust, we find that petitioners lacked a reasonable basis in
                                     reporting, on their joint 2002 Form 1040, an NOL deduction
                                       40 We differentiate here between the penalty for negligence and the penalty for disregarding

                                     rules or regulations because the accuracy-related penalty on the ground of negligence may not
                                     be avoided by disclosure of a return position, irrespective of whether the position has a reason-
                                     able basis. Sec. 1.6662–7(b), Income Tax Regs.




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                                     (418)                           GOULD v. COMMISSIONER                                       459


                                     related to losses attributable to the MCLT and a capital loss
                                     carryover.
                                       Consequently, we find that petitioners have failed to show
                                     that the substantial understatement should be reduced
                                     because they had a reasonable basis for reporting NOL and
                                     capital loss deductions on their joint 2002 tax return. 41
                                     Therefore, we need not address the adequacy of the disclo-
                                     sure of their tax position. See sec. 1.6662–3(c)(1), Income Tax
                                     Regs.
                                       Accordingly, petitioners are liable for the 20% accuracy-
                                     related penalty under section 6662(d) for tax year 2002
                                     unless they meet the section 6664(c) exception for reasonable
                                     cause and good faith. Because of section 1.6662–2(c), Income
                                     Tax Regs., we need not address the applicability of the pen-
                                     alty based upon the ground of negligence.
                                           3. Section 6664(c) Reasonable Cause Defense
                                        A taxpayer may avoid the section 6662(a) penalty by
                                     showing that he had reasonable cause for a portion of the
                                     underpayment and that he acted in good faith with respect
                                     to that portion. Sec. 6664(c)(1). Reasonable cause requires
                                     that the taxpayer exercise ordinary business care and pru-
                                     dence as to the disputed item. United States v. Boyle, 469
                                     U.S. 241, 246 (1985). That determination is made on a case-
                                     by-case basis, taking into account all pertinent facts and cir-
                                     cumstances, including the taxpayer’s knowledge and experi-
                                     ence. Woodsum v. Commissioner, 136 T.C. 585, 591 (2011);
                                     sec. 1.6664–4(b)(1), Income Tax Regs. Generally, the most
                                     important factor is the extent of the taxpayer’s effort to
                                     assess his proper tax liability. Sec. 1.6664–4(b)(1), Income
                                     Tax Regs.
                                        A taxpayer may demonstrate reasonable cause through
                                     good-faith reliance on the advice of an independent profes-
                                     sional, such as a tax adviser, lawyer, or accountant, as to the
                                     item’s tax treatment. Boyle, 469 U.S. at 251; Canal Corp. &
                                     Subs. v. Commissioner, 135 T.C. 199, 218 (2010). To prevail,
                                     the taxpayer must show that he: (1) selected a competent
                                     adviser with sufficient expertise to justify reliance, (2) sup-
                                     plied the adviser with necessary and accurate information,
                                      41 We do not consider petitioners’ argument as it relates to tax credits because the understate-

                                     ment of tax in 2002 is not attributable to petitioners’ claim for credits.




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                                     460                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     and (3) actually relied in good faith on the adviser’s judg-
                                     ment. See 106 Ltd. v. Commissioner, 136 T.C. 67, 77 (2011),
                                     aff ’d, 684 F.3d 84 (D.C. Cir. 2012). The professional’s advice
                                     must be based on all pertinent facts and circumstances; ‘‘if
                                     the adviser is not versed in the nontax factors, mere reliance
                                     on the tax adviser may not suffice.’’ Todd v. Commissioner,
                                     T.C. Memo. 2011–123; see also Freytag v. Commissioner, 89
                                     T.C. 849, 888 (1987), aff ’d, 904 F.2d 1011 (5th Cir. 1990),
                                     aff ’d, 501 U.S. 868 (1991).
                                        Petitioners claim that they acted with reasonable cause
                                     and in good faith in reporting the NOL and capital losses and
                                     related carryover deductions on their joint 2002 Form 1040
                                     because (1) their ‘‘returns were carefully prepared, with the
                                     assistance of either or both a qualified certified public
                                     accountant or tax counsel’’, and (2) they ‘‘made a full and
                                     honest attempt to assess [their] tax liability’’.
                                        Petitioners do not identify the aforementioned ‘‘qualified
                                     certified public accountant or tax counsel’’. After reviewing
                                     the record, we construe petitioners’ argument to be that they
                                     relied on (1) Mr. Schumacher, a certified public accountant,
                                     to accurately prepare the Federal tax returns on which peti-
                                     tioners reported the NOLs and capital losses, and (2) their
                                     attorney, Mr. Musselman, to review petitioners’ self-prepared
                                     2002 Form 1040 and ‘‘the returns filed by Petitioner on
                                     behalf of the Liquidating Trust as its beneficial owner for
                                     taxable years 1997 and 1998.’’
                                        Petitioners failed to prove that Messrs. Schumacher and
                                     Musselman were competent tax advisers with sufficient
                                     expertise to justify their reliance. Petitioners introduced no
                                     evidence regarding their particular expertise in analyzing
                                     grantor trust arrangements or bankruptcy law for Federal
                                     income tax purposes. See 106 Ltd. v. Commissioner, 136 T.C.
                                     at 77. Petitioners similarly failed to show that they provided
                                     either man with the necessary and accurate information to
                                     properly prepare or review their joint tax returns. Petitioners
                                     introduced no evidence that they provided Mr. Musselman
                                     with pertinent details underlying the tax items reported on
                                     their 2002 tax return or that they provided Mr. Schumacher
                                     with any information with which to properly prepare their
                                     Federal tax returns. For example, petitioners did not proffer
                                     evidence that they provided Mr. Schumacher with informa-
                                     tion as to petitioner’s entitlement to succeed to the NOLs of




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                                     (418)                           GOULD v. COMMISSIONER                                       461


                                     his bankruptcy estate or to the capital loss petitioner pur-
                                     ports to have incurred in 1991. Although Mr. Schumacher
                                     prepared financial information for MCJV, MCLP, and Chopin
                                     from which the entities’ Schedules K–1 were prepared, and
                                     prepared petitioners’ 1991–94 Forms 1040 from those Sched-
                                     ules K–1, the record is silent as to petitioners’ role in sup-
                                     plying to Mr. Schumacher all necessary information to
                                     ensure accurate preparation of those Forms 1040.
                                        In addition, petitioners have not proved that they received
                                     or relied upon the advice of Mr. Schumacher or Mr.
                                     Musselman regarding the tax treatment of the NOL and cap-
                                     ital losses and their entitlement to carry over those losses to
                                     their 2002 Form 1040. In order to constitute ‘‘advice’’ under
                                     section 1.6664–4(c)(2), Income Tax Regs., the communication
                                     must reflect the adviser’s ‘‘analysis or conclusion.’’ Woodsum
                                     v. Commissioner, 136 T.C. at 593 (‘‘The taxpayer must show
                                     * * * that he ‘relied in good faith on the adviser’s judg-
                                     ment.’ ’’ (quoting Neonatology Assocs., P.A. v. Commissioner,
                                     115 T.C. 43, 99 (2000), aff ’d, 299 F.3d 221 (3d Cir. 2002))).
                                     Petitioners proffer that Mr. Musselman reviewed petitioners’
                                     2002 self-prepared return and that they relied on his advice;
                                     petitioners, however, did not specify the nature or substance
                                     of the advice. Petitioners similarly failed to establish that
                                     Mr. Schumacher exercised judgment or made a professional
                                     recommendation when preparing petitioners’ 1991–94 Forms
                                     1040. Reliance on the mere fact that a certified public
                                     accountant has prepared a tax return does not mean that he
                                     ‘‘opined on any or all of the items reported therein.’’
                                     Neonatology Assocs., P.A. v. Commissioner, 115 T.C. at 100.
                                        We also find that petitioners failed to make a good-faith
                                     effort to assess their proper 2002 tax liability. Petitioners
                                     argue that petitioner ‘‘made a full and honest attempt to
                                     assess his tax liability, and fully disclosed his position to
                                     Respondent. * * * Respondent cannot use his disagreement
                                     with Petitioner’s interpretation of the facts and the law as
                                     grounds for a penalty.’’ In support of their contention, peti-
                                     tioners direct us to, among others, the following proposed
                                     findings: (1) petitioners disclosed to respondent, on their
                                     1997 and 1998 Forms 1040, the amounts of taxes that the
                                     liquidating trustee had paid and that the assessed 1997 and
                                     1998 taxes against the MCLT remained unpaid, and (2) peti-
                                     tioners’ tax returns fully explained the tax credits, NOLs, and




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                                     462                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     net capital losses to which they believed they were entitled
                                     under Holywell Corp. v. Smith, 503 U.S. 47.
                                        Even assuming that we were to make those proposed
                                     findings, which we do not, they do not establish the steps
                                     taken to verify the accuracy of the purportedly disclosed tax
                                     positions. Petitioners presented no evidence that they
                                     researched or otherwise determined the proper tax treatment
                                     of the NOLs, both from the MCLT and petitioner’s bankruptcy
                                     estate, and capital losses. As stated supra section I.C.2. of
                                     this report, we do not find that petitioner, an educated and
                                     successful businessman, could in good faith have reasonably
                                     based his tax position on the U.S. Supreme Court’s decision
                                     in Holywell Corp. Finally, the record is devoid of any evi-
                                     dence of petitioners’ attempts to ascertain the correctness of
                                     the 2002 capital loss carryover generated from an unsubstan-
                                     tiated 1991 capital loss.
                                        Petitioners have not carried their burden of proving that
                                     they acted with reasonable cause and in good faith in
                                     claiming the NOL carryover deduction and the capital loss
                                     carryover on their joint 2002 Form 1040.
                                           4. Conclusion
                                       Petitioners are liable for the section 6662(a) penalty as
                                     applied to the underpayment of tax determined herein for
                                     taxable year 2002.
                                     II. Collection Proceeding Regarding Petitioners’ 1995, 1999–
                                         2003, and 2005–07 Tax Liabilities
                                        Finally, we decide whether: (1) respondent may proceed by
                                     levy with the collection of petitioners’ self-reported self-
                                     employment taxes, accrued interest, and penalties, for tax
                                     years 1995, 1999–2003, and 2005–07 pursuant to section
                                     6330, (2) Appeals abused its discretion in sustaining the
                                     filing of the notice of Federal tax lien for tax years 2000–
                                     2003 and 2005–07, and (3) Settlement Officer DeVincentz
                                     abused his discretion in refusing petitioners a face-to-face
                                     CDP hearing for tax years 2000–2003 and 2005–07.
                                        Section 6321 imposes a lien for unpaid Federal taxes,
                                     which arises when an assessment is made. Sec. 6322. The
                                     Secretary must notify the taxpayer in writing of the filing of
                                     a notice of lien and, among other things, the taxpayer’s right




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                                     (418)                           GOULD v. COMMISSIONER                                         463


                                     to request a hearing on the matter. Sec. 6320(a). Section
                                     6320(c) requires that that hearing be conducted pursuant to
                                     section 6330(c), ‘‘(d) (other than paragraph (2)(B) thereof), (e),
                                     and (g)’’.
                                        Section 6331(a) authorizes the Secretary to levy upon prop-
                                     erty and property rights of a taxpayer liable for taxes who
                                     fails to pay those taxes within 10 days after notice and
                                     demand for payment is made. Section 6331(d) requires that
                                     the Secretary give written notice to the taxpayer of his intent
                                     to levy, and section 6330(a) requires the Secretary to send
                                     the taxpayer written notice of his right to a hearing before
                                     Appeals at least 30 days before any levy begins.
                                        If the taxpayer requests a hearing in response to either a
                                     notice of Federal tax lien or a notice of levy, he may raise
                                     at the hearing ‘‘any relevant issue relating to the unpaid tax
                                     or the proposed levy’’. Sec. 6330(c)(2)(A). He may also chal-
                                     lenge the existence or amount of the underlying tax liability
                                     if he did not receive a statutory notice of deficiency for such
                                     tax liability or did not otherwise have an opportunity to dis-
                                     pute the tax liability. Sec. 6330(c)(2)(B).
                                        We have jurisdiction over the determination made by
                                     Appeals, and our jurisdiction is defined by the scope of that
                                     determination. Sec. 6330(d)(1); Freije v. Commissioner, 125
                                     T.C. 14, 25 (2005).
                                        Petitioners filed hearing requests in response to the notices
                                     of levy and the lien notice challenging Appeals’ determina-
                                     tion on the ground that, in 1992 and 1993, the liquidating
                                     trustee ‘‘made payments to the Internal Revenue Service of
                                     $13,361,000 [42] for which * * * [petitioners] should receive a
                                     credit’’ and which offset their 1995, 1999–2003, and 2005–07
                                     self-employment tax liabilities. 43 On brief, both parties
                                     raised the jurisdictional issue, specifically, whether, under
                                     Freije, petitioners’ claim to credits against their 1995, 1999–
                                     2003, and 2005–07 tax liabilities for overpayments from non-
                                     CDP years is a ‘‘relevant issue relating to the unpaid tax or

                                        42 We note that petitioners’ hearing request for 1995 indicates an amount of taxes paid by Mr.

                                     Smith ($13,347,000) different from those in the hearing request for 1999 and the levy and lien
                                     hearing requests for 2000–2003 and 2005–07 ($13,361,000).
                                        43 On brief, respondent argues that petitioners also claim credits attributable to ‘‘alleged in-

                                     come taxes of MCLT for 1997 and 1998’’. In each of the hearing requests and on brief, peti-
                                     tioners assert that their claim for a credit is based upon payments by the liquidating trustee
                                     of $13.3 million to the IRS. We, therefore, do not address respondent’s additional argument.




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                                     464                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     the proposed levy’’ for those years such that we have jurisdic-
                                     tion to review Appeals’ determination.
                                        We do not reach the issue of our authority under section
                                     6330(d)(1) to decide petitioners’ claim of overpayments from
                                     prior years because that claim is time barred. 44
                                        Section 6402(a) permits the Secretary to credit the amount
                                     of an overpayment, including any interest allowed thereon,
                                     against ‘‘any liability in respect of an internal revenue tax on
                                     the part of the person who made the overpayment’’. As we
                                     recently stated in Brady v. Commissioner, 136 T.C. 422, 427
                                     (2011), in certain situations this Court has considered a tax-
                                     payer’s claim that his liability for the year involved in a sec-
                                     tion 6330 collection proceeding should be offset by overpay-
                                     ments in other years. 45 We explained that the taxpayer’s
                                     entitlement to credits against his unpaid tax for a determina-
                                     tion year for an alleged overpayment in a prior year depends
                                     on whether he asserted his overpayment claim within the
                                     applicable period of limitations. Id. at 428 (‘‘[I]f petitioner’s
                                     overpayment claims are statutorily time barred (assuming
                                     arguendo that there was an overpayment), any claim that
                                     overpayments are available as a credit to offset the 2005 tax
                                     liability would also be time barred.’’). A claim for credit or
                                     refund of an overpayment must be filed ‘‘within 3 years from
                                     the time the return was filed or 2 years from the time the
                                     tax was paid, whichever of such periods expires the later, or
                                     if no return was filed by the taxpayer, within 2 years from
                                     the time the tax was paid.’’ Sec. 6511(a).
                                        Mr. Smith remitted $13 million to the IRS in 1992 and
                                     1993 46 as estimated tax payments and advance payments on
                                     behalf of the MCLT and Holywell for taxable years 1985–91.
                                        44 Respondent also argues that this Court lacks jurisdiction because petitioners ‘‘do not raise

                                     viable underlying liability issues’’ under sec. 6330(c)(2)(B). Because we find infra that peti-
                                     tioners’ claim of overpayments from prior years is time barred, we need not address respondent’s
                                     additional argument.
                                        45 See, e.g., Freije v. Commissioner, 125 T.C. 14 (2005); Landry v. Commissioner, 116 T.C. 60

                                     (2001); Conn v. Commissioner, T.C. Memo. 2011–166.
                                        46 On brief, respondent asserts that the payments at issue were remitted in 1993 and 1994;

                                     in his proposed findings of fact, however, he refers to 1992 and 1993 as the relevant years. We
                                     assume a typographical error in respondent’s brief because Stipulated Exhibit 61 contains copies
                                     of checks and an account activity summary which indicate the payments occurred in 1992 and
                                     1993.
                                        As stated supra note 37, we are unconvinced as to petitioners’ assertion that Mr. Smith remit-
                                     ted to the IRS $361,000 in estimated tax payments on behalf of Holywell. We need not concern
                                     ourselves with this issue, however, because the only evidence in the record of payments to the
                                     IRS on behalf of Holywell shows that they were made in 1992 and 1993; thus, all alleged over-
                                     payments claimed by petitioners arose, if they did arise, in 1992 and 1993.




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                                     (418)                                GOULD v. COMMISSIONER                                       465


                                     The MCLT and Holywell did not file Federal tax returns for
                                     those years. Petitioners, asserting that petitioner should be
                                     treated as the taxpayer who remitted the payments because
                                     the MCLT is a grantor trust as to him and because he ‘‘did
                                     not have taxable income for the applicable years’’, claimed a
                                     credit or refund of those alleged overpayments. Petitioner did
                                     so, at the earliest, 47 on September 25, 1997, the date on
                                     which he filed petitioners’ amended 1995 joint Form 1040,
                                     claiming estimated tax payments of $3,103,406 and reporting
                                     an overpayment of $3,091,159. Petitioners’ claim for a credit
                                     or refund of the 1992 and 1993 payments occurred more than
                                     two years after Mr. Smith had remitted the payments to the
                                     IRS. Petitioners, therefore, did not timely claim a credit or
                                     refund of those overpayments with respect to the nondeter-
                                     mination years. Their claim of credits against their 1995,
                                     1999–2003, and 2005–07 self-employment tax liabilities for
                                     overpayments is time barred.
                                        As to years 2000–2003 and 2005–07, petitioners also argue
                                     that they did not receive a CDP hearing and that Settlement
                                     Officer DeVincentz abused his discretion in failing ‘‘to grant
                                     the petitioner’s statutory right to a face-to-face [CDP]
                                     hearing’’. Because this is not a challenge to the underlying
                                     tax liabilities, we review this issue for abuse of discretion.
                                     See Sego v. Commissioner, 114 T.C. 604, 610 (2000).
                                        Although a CDP hearing may consist of a face-to-face con-
                                     ference, it may also be conducted by telephone, by cor-
                                     respondence, or by review of documents. Sec. 301.6330–
                                     1(d)(2), Q&A–D6, Proced. & Admin. Regs. There is sufficient
                                     evidence in the record to support a finding that, during the
                                     examination, petitioner spoke to, corresponded with, and sent
                                     documents to, Settlement Officer DeVincentz. We find that
                                     petitioner was afforded a CDP hearing. Settlement Officer
                                     DeVincentz did not abuse his discretion in refusing peti-
                                     tioner’s request for a face-to-face CDP hearing at a specific
                                     location because such a hearing would have been futile. E.g.,
                                     Busche v. Commissioner, T.C. Memo. 2011–285, 2011 WL
                                     6089879, at *13 (‘‘[A] face-to-face hearing may be granted
                                     only upon a showing that there is something to be accom-
                                     plished at a face-to-face hearing.’’). First, as we found supra,
                                     petitioners’ claim that the liquidating trustee’s payments to
                                           47 Petitioners’   joint 1992–95 Forms 1040 do not report overpayments.




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                                     466                 139 UNITED STATES TAX COURT REPORTS                                    (418)


                                     the IRS offset their 2000–2003 and 2005–07 self-employment
                                     tax liabilities is time barred. Even assuming that their claim
                                     was not time barred, considering the evidence and our
                                     finding that petitioner was not a grantor of the MCLT, peti-
                                     tioners’ argument was groundless. Petitioners were not enti-
                                     tled to claim those credits on their tax returns and had made
                                     the same argument numerous times before both Appeals and
                                     other courts. Indeed, the notice of determination for 2000–
                                     2003 and 2005–07 stated that petitioners could not challenge
                                     the liabilities in their CDP hearing because ‘‘This issue [claim
                                     to credits] has been repeatedly challenged by the taxpayer
                                     and ruled against him.’’ Petitioners did not propose any
                                     collection alternatives. Therefore, a face-to-face hearing
                                     would not have been productive. Under these circumstances,
                                     it was not an abuse of discretion for Settlement Officer
                                     DeVincentz to refuse to conduct a face-to-face hearing.
                                     III. Conclusion
                                           To reflect the foregoing,
                                                                        Decisions will be entered under Rule 155.




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