                  T.C. Summary Opinion 2010-105



                     UNITED STATES TAX COURT



                 YANG JULIA XIANG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                DARIAVASH PARTOVI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 13151-09S, 13223-09S.   Filed July 29, 2010.



     Yang Julia Xiang, pro se.

     Dariavash Partovi, pro se.

     Audrey M. Morris, for respondent.



     DEAN, Special Trial Judge:   These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petitions were filed.    Pursuant

to section 7463(b), the decisions to be entered are not

reviewable by any other court, and this opinion shall not be
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treated as precedent for any other case.     Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the years in issue.

     Respondent determined deficiencies in petitioners’ Federal

income taxes for 2005 and 2006 as follows:

      Docket No.    2005 Deficiency        2006 Deficiency

       13151-09S            $2,094              $1,116
       13223-09S             5,413                 264

The deficiencies resulted solely from respondent’s disallowance

of claimed credits for the production of fuel from

nonconventional sources (FNS tax credit) under former section 29,

now section 45K.

                              Background

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.     Petitioners resided in

Texas at the time their petitions were filed.

      Petitioners, who were dating during the years at issue and

were later married, sought tax advice together for their 2005 and

2006 returns.

     The Federal income tax returns at issue in these cases were

prepared by “The Income Tax Office”, a tax preparation business

owned by Louis and Elizabeth Powell of Carthage, Texas.      The

Income Tax Office introduced both petitioners to the idea of

claiming FNS tax credits.    Both petitioners claimed these credits
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on their 2005 returns and claimed credit carryforwards from 2005

on their 2006 returns.

     On the 2005 and 2006 Forms 1040, U.S. Individual Income Tax

Return, that the Income Tax Office prepared for petitioners their

tax liabilities were reduced by a claim for FNS tax credits from

a facility allegedly placed in service on December 1, 1996.    For

2005 petitioners reported de minimis profits from an “Oil and Gas

Extraction” business on Schedules C-EZ, Net Profit From Business.

In part because of their claims for FNS tax credits and credit

carryforwards, petitioners’ 2005 and 2006 returns reflected

overpayments.

     The transactions reported on Schedules C-EZ for 2005 and the

claims for FNS tax credits attached to petitioners’ 2005 and 2006

returns were fictitious.   They arose from petitioners’ purported

transaction with an entity known as Gas Recovery Partners that

purportedly owned landfills that produced alternative fuels,

enabling petitioners to claim FNS tax credits.   The promoters

purported to sell petitioners, through the Income Tax Office, a

share of the landfills for a percentage of the expected FNS tax

credits.   In fact, the promoters had no ownership interest in any

landfill, and no alternative fuels within the meaning of former

section 29, now section 45K, were produced.

     On April 2, 2009, the U.S. Department of Justice filed a

civil injunction lawsuit against 32 individuals, including the
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owners of the Income Tax Office, seeking to bar them from

promoting an alleged tax scam involving income tax credits

claimed for sham sales of methane from landfills.

                             Discussion

     Subject to various limitations, former section 29,

redesignated section 45K for years ending after December 31,

2005, provided a credit for producing fuel from a nonconventional

source.    The credit is based on the fuel produced and

attributable to the taxpayer.    Because neither petitioners nor

the persons they dealt with had an interest in a fuel-producing

source and no fuel was produced, we need not explore the

complexities of the credit provision.     See generally S/V Drilling

Partners v. Commissioner, 114 T.C. 83 (2000); Nielson-True Pship.

v. Commissioner, 109 T.C. 112 (1997), affd. sub nom. True Oil Co.

v. Commissioner, 170 F.3d 1294 (10th Cir. 1999).

     Petitioners testified that the owners of the Income Tax

Office showed them legal documentation indicating that the FNS

tax credit was a legal tax credit or investment designed to

assist taxpayers and tax preparers.     They were told that if they

invested an initial amount, they would be entitled to 20 percent

of the credit that they were to receive from the Internal Revenue

Service.    At the time petitioners were unaware that the scheme

was a sham, but they now admit that they have been victims of a

fraudulent scheme.    Petitioners further stipulated that the
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promoters of the scheme did not own landfills and that the

landfills they allegedly invested in did not produce any

alternative fuels entitling them to the FNS credits.       By the time

of trial they did not dispute respondent’s determination.

     The Court deplores the fraud perpetrated on petitioners and

sympathizes with the situation in which they find themselves.

The stipulated facts, however, establish that petitioners are not

entitled to the FNS tax credits and that the related adjustments

in the notices of deficiency are correct.

     To reflect the foregoing,


                                         Decisions will be entered

                                  for respondent.
