                        T.C. Memo. 2006-214



                      UNITED STATES TAX COURT

                    K & M LA BOTICA PHARMACY,
              INCORPORATED, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket Nos.   10500-99, 17346-99,   Filed October 4, 2006.
                   17725-99, 8134-00.



     Larry M. Bakman and Ronald S. Marks, for petitioners.

     Ric D. Hulshoff, Loren B. Mark, Ronald S. Chun, Angelique M.

Neal, and Daniel M. Whitley, for respondent.




     * This Supplemental Memorandum Opinion supplements our
prior opinion in K & M La Botica Pharmacy, Inc. v. Commissioner,
T.C. Memo. 2005-277.

     1 Cases of the following petitioners are consolidated
herewith: Khaled Ahmed, docket No. 17346-99; Khaled Ahmed,
docket No. 17725-99; and K & M La Botica Pharmacy, Inc., docket
No. 8134-00.
                               - 2 -

                  SUPPLEMENTAL MEMORANDUM OPINION

     SWIFT, Judge:   This matter is before us on the parties’

dispute as to entry of decisions pursuant to Rule 155.

     Unless otherwise indicated, all 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.

     In our prior opinion, we held that for 1995 and 1996

petitioner K & M La Botica, Inc. (K & M), and for 1995, 1996, and

1997 petitioner Khaled Ahmed (Ahmed) were liable under section

6663(a) for civil fraud, and we held that for 1998 Ahmed was

liable under section 6651(f) for civil fraud.

     At trial, the parties, among other things, stipulated that

for 1997 and 1998 several corporations associated with Ahmed were

to be treated as Ahmed’s nominees and that the nominee

corporations’ income and expenses were to be attributed to Ahmed

individually.2   The parties also stipulated the amounts of income


     2
        In the parties’ stipulation, the parties also stipulated
that the mere fact that Ahmed had conceded the nominee status of
the various corporations would have no bearing on the issue of
fraud. The stipulation, however, expressly preserved
respondent’s right to argue, and the Court to find, that the
corporations in fact constituted Ahmed’s nominees and that such a
finding could be used to support a finding of fraud. In our
prior opinion, and independently of the parties’ stipulation, we
made specific findings of fact that the corporations were Ahmed’s
nominees, and we went further. We found as follows:


                                                    (continued...)
                              - 3 -

and expenses to be charged to each petitioner for each year in

issue.

     As a result of the above stipulations, the parties

represented to the Court that the Court needed to decide only

whether petitioners for the years in issue were liable for civil

fraud.

     Ahmed, however, in his pending Rule 155 computations and

related briefs makes several meritless arguments in an apparent

attempt to alter the parties’ stipulations.   For example, Ahmed

argues that he is entitled to additional deductions, that

different amounts of income should be charged to Ahmed than the

amounts reflected in the parties’ stipulations, that in certain

years Ahmed should compute his individual income tax liability as

if he were a corporation, and that respondent should not be

allowed to submit computations that differ from respondent’s

proof of claims filed previously with the Bankruptcy Court.




     2
      (...continued)
          Hereinafter, we sometimes refer to the above
     entities formed by Ahmed as the “nominee entities” –-
     reflecting the fact that Ahmed, during at least 1997
     and 1998, personally and solely managed and
     controlled essentially all significant aspects of the
     operations and activities of the pharmacies, the
     medical clinics, and the medical laboratory; that
     Ahmed treated the nominee entities as his alter ego;
     and that for Federal income tax purposes for 1997 and
     1998 all income and expenses of the nominee entities
     are to be charged to Ahmed personally.
                                 - 4 -

     We reject each of Ahmed’s arguments.     Rule 155 proceedings

cannot be used to raise new issues that were not litigated at the

trial of a case or to relitigate issues that were previously

decided.     Rule 155(c); Molasky v. Commissioner, 91 T.C. 683, 685

(1988), affd. on this issue 897 F.2d 334 (8th Cir. 1990); Cloes

v. Commissioner, 79 T.C. 933, 935 (1982).

     Below we address in more detail disputed items relating to

the parties’ respective Rule 155 computations.3


Ahmed 1997 Section 6651(a)(1) Addition to Tax

     Ahmed untimely filed his and his wife’s 1997 joint Federal

income tax return.     The parties did not stipulate, nor did we

decide in our opinion, whether for 1997 Ahmed is liable for the

section 6651(a)(1) addition to tax determined by respondent in

the notice of deficiency.

         Ahmed, however, did not introduce evidence at the trial,

and he did not argue on brief, that he had reasonable cause for

failure to timely file his 1997 joint Federal income tax return.

Arguments not made on brief may be deemed abandoned.     Mendes v.

Commissioner, 121 T.C. 308, 312-313 (2003).     We treat Ahmed as

having abandoned this issue.




     3
        Some items we address for purposes of clarification, even
though they may not be appropriately raised in this Rule 155
proceeding.
                              - 5 -

     For 1997, Ahmed is liable for the section 6651(a)(1)

addition to tax.


Ahmed 1998 Section 6651(f) Addition to Tax

     Ahmed now alleges, for the first time, that he obtained an

extension until October 15, 1999, to file his and his wife’s 1998

joint Federal income tax return.   Because he filed the 1998

return on September 24, 1999, Ahmed contends that he should not

be held liable for a section 6651(f) fraudulent failure to file

addition to tax.

     In his petition, although Ahmed made a general claim that he

timely filed his Federal income tax returns for 1995 through

1998, Ahmed did not specifically assign error to respondent’s

imposition of the section 6651(f) addition to tax for 1998 based

on an alleged extension of time to file.

     Further, at trial, on brief, and in his proposed findings of

fact, Ahmed did not assert that he obtained a valid extension of

time to file his 1998 joint Federal income tax return, nor did

Ahmed argue that the alleged extension made imposition of the

section 6651(f) addition to tax inappropriate.

     We conclude that Ahmed abandoned this argument.   See Mendes

v. Commissioner, supra.

     Further, to be valid, Form 4868, Application for Automatic

Extension of Time To File U.S. Individual Income Tax Return,

must show the full amount properly estimated as tax for the year.
                               - 6 -

Sec. 1.6081-4(a)(4), Income Tax Regs.   If the estimate of tax is

not reasonable, then the extension request, even if granted, will

be void.   Clayton v. Commissioner, 102 T.C. 632, 651 (1994).

     Ahmed did not introduce into evidence the allegedly filed

Form 4868, and we are therefore unable to determine whether Ahmed

reasonably estimated his 1998 tax liability.    We infer from

Ahmed’s failure to introduce the allegedly filed Form 4868 that

the evidence would be detrimental to Ahmed.    See Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947).

     For purposes of computing Ahmed’s 1998 section 6651(f)

fraudulent failure to file addition to tax, Ahmed’s 1998 joint

Federal income tax return is to be treated as filed untimely.4


Self-Employment Taxes

     Ahmed argues that for 1997 and 1998 self-employment taxes

should not be imposed on the stipulated collapsed income charged

to him from the nominee corporations.

     Section 1401(a) imposes a self-employment tax on

individuals’ self-employment income.    Self-employment income is

defined as the “net earnings from self-employment”, which is


     4
        Ahmed, in his Rule 155 computation, made several
alternative arguments relating to the length of the applicable
period for computing the sec. 6651(f) addition to tax. Ahmed’s
arguments are without merit, and Ahmed’s 1998 joint Federal
income tax return is to be treated as filed more than 5 months
past the due date.
                                 - 7 -

defined as the net income derived by an individual from any trade

or business carried on by such individual.    Sec. 1402(a) and (b).

Exceptions from inclusion in net earnings from self-employment

are construed narrowly.     Johnson v. Commissioner, 60 T.C. 829,

833 (1973).

     As explained in our prior opinion, because he completely

controlled all aspects of the nominee corporations and because he

treated the nominee corporations as his alter ego in connection

with his trade or business of providing medical services and

products and other related activities, Ahmed earned the income

that was collapsed and charged to him personally.    Because Ahmed

earned the collapsed income in his trade or business, the income

constitutes net earnings from self-employment and thus self-

employment income.

     As explained, at trial Ahmed stipulated that the collapsed

income from the nominee corporations would be treated as earned

by Ahmed individually.    The stipulation does not indicate that

the collapsed trade or business income should be treated

differently from other trade or business income earned by Ahmed.

     Respondent, in his notice of deficiency, determined that

self-employment taxes should be imposed on income collapsed from

the nominee corporations.    On brief, Ahmed did not specifically

argue that respondent improperly imposed self-employment taxes on

the collapsed income, and we therefore conclude that Ahmed
                               - 8 -

abandoned this argument.   See Mendes v. Commissioner, 121 T.C. at

312-313.

     Further, even though Ahmed now argues that he should not be

liable for self-employment taxes, on the initial computations

that Ahmed submitted to the Court, Ahmed himself calculated self-

employment taxes on the collapsed income.


Crediting of Nominee Payments for Purposes of Determining the
Penalty and Additions to Tax for 1997 and 1998

     In calculating Ahmed’s 1997 and 1998 penalty and additions

to tax, neither party in the initial Rule 155 computations

credited Ahmed for the nominee corporations’ 1997 and 1998 income

tax payments.

     We conclude that because Ahmed is being charged with the

nominee corporations’ income and expenses, in calculating Ahmed’s

1997 and 1998 penalty and additions to tax, it is appropriate to

credit Ahmed individually with the amounts paid by the nominee

corporations as Federal income taxes for each year.   Ahmed is to

be so credited.5




     5
        In calculating Ahmed’s 1997 sec. 6651(a)(1) and 1998 sec.
6651(f) additions to tax, Ahmed is to be credited only with those
payments made by the nominee corporations prior to the due dates
of Ahmed’s respective Federal income tax returns. See sec.
6651(b)(1).
                                 - 9 -

Income Tax Payments and Application

     The parties disagree as to the income tax payments to be

credited to Ahmed.   After reviewing the parties’ computations, it

appears that respondent’s computations correctly reflect the

income tax payments to be credited to Ahmed.       We so hold.

     We have considered all arguments made herein by Ahmed, and,

to the extent not addressed, we conclude that they are without

merit or are irrelevant.

     To reflect the foregoing,

                                              Appropriate decisions

                                         will be entered.
