1983 Tax Ct. Memo LEXIS 75 | Tax Ct. | 1983
MEMORANDUM FINDINGS OF FACT AND OPINION
1983 Tax Ct. Memo LEXIS 75">*76 FEATHERSTON,
REPORT OF THE SPECIAL TRIAL JUDGE
GUSSIS,
Income Tax | Sec. 6653(a) | ||
Docket No. | Year | Deficiency | Addition to Tax |
7437-78 | 1975 | $ 5,285.00 | $ 264.00 |
1976 | 20,054.00 | 1,002.70 | |
16930-80 | 1977 | $29,920.00 | $1,496.00 |
1978 | 21,374.00 | 1,069.00 | |
9232-82 | 1979 | $25,616.15 | $1,280.81 |
Petitioners1983 Tax Ct. Memo LEXIS 75">*77 have conceded that the income reported by the Joseph Birkenstock Equity Trust is taxable to petitioners in the taxable years here involved. The remaining issues for decision are: (1) Whether petitioners were entitled to a deduction in 1975 under section 212 for the cost of materials used to establish a family trust; and (2) whether any part of petitioners' underpayment of tax for each of the years 1975 through 1979 was due to negligence or intentional disregard of the rules and regulations.
FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations of facts and exhibits attached thereto are incorporated by this reference.
Petitioners Joseph J. Birkenstock and Generose M. Birkenstock resided in Wisconsin at the time the petitions herein were filed.
Petitioner-husband (hereinafter petitioner) was employed as an engineer for the Formrite Tube Company, a business which he organized in 1950 and of which he was president. On November 22, 1975, petitioner paid $7,000 to the Joseph Birkenstock Educational Trust. The $7,000 payment entitled petitioner to receive written materials and services from Educational Scientific Publishers (a trust) (hereinafter ESP) to1983 Tax Ct. Memo LEXIS 75">*78 be used to establish a family trust. The materials consisted of preprinted forms and instructions for their completion. ESP services included counseling and advice with respect to the creation and maintenance of the trust. Petitioner did not know how ESP allocated his $7,000 payment between ESP services and the various trust forms distributed. On November 26, 1975, the Joseph Birkenstock Equity Trust (hereinafter Trust) was established, naming petitioner as the grantor-creator and his wife, Generose M. Birkenstock, and son, Karl E. Birkenstock, as trustees. Shortly after the creation of the trust, petitioner conveyed various assets to the trust, including commercial property, insurance policies, stock and exclusive rights to their lifetime services and income.
Subsequent to 1975, petitioner received additional materials and brochures from ESP regarding the family trust. He was also notified by ESP of scheduled tax seminars which apparently took place at least once a year. On his 1975 tax return, petitioner deducted $7,000 for the "cost of setting up" the Joseph Birkenstock Equity Trust. This deduction was disallowed in full by respondent.
OPINION
Petitioner now contends1983 Tax Ct. Memo LEXIS 75">*79 that some 80 percent of the $7,000 paid for ESP materials and services is deductible as an expense under section 212(2) for the management, conservation, or maintenance of property held for the production of income and under section 212(3) for the determination, collection, or refund of taxes. Petitioner has the burden of proof.
Petitioner stresses the fact that the assets transferred to the trust included some income-producing properties. However, it readily appears from the record that petitioner received only generalized instructions on how to transfer his assets to the trust and preprinted forms for making such transfers. There is no persuasive evidence to show that such guidance and advice were in any way related to the management or conservation of such property.
Moreover, as we stated in
Finally, with respect to petitioner's testimony that his efforts to recast the ownership of his property were prompted by his pending retirement, this Court has held that amounts paid for advice with respect to planning one's personal and family affairs are nondeductible personal expenditures within the meaning of section 262.
The final issue is whether petitioner is liable for additions to tax under section 6653(a). This section provides that if any underpayment of taxes is due to negligence or intentional disregard of the rules and regulations, an amount equal to 5 percent of the underpayment will be added to the tax. The burden of proof rests with petitioner to show that respondent's determination is erroneous.
Good faith reliance upon competent counsel may in some circumstances negate a charge of negligence. Here, however, we are not persuaded that petitioner's reliance upon the various individuals involved in setting up his trust was in good faith. Petitioner is an astute business executive. *82 The individuals he purportedly relied upon to a large extent in setting up the trust were neither attorneys nor accountants. Furthermore, it is evident from petitioner's testimony that he was fully aware of the legal challenges to the viability of family trusts. 3 We are persuaded that petitioner's actions under the circumstances portrayed in this record constituted negligence or intentional disregard of the law. Respondent is therefore sustained on this issue.
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated. ↩
2. Pursuant to the order of this Court dated Nov. 22, 1982, the post-trial procedures of
Rule 182, Tax Court Rules of Practice and Procedure↩ , are not applicable to the proceedings in these cases. Said order is based upon the authority of the "otherwise provided" language of that Rule.3. We should also note that, with respect to the year 1974, petitioner computed his taxable income on his 1974 tax return using the purported "gold value" of his income. This Court rejected this contention.See
.Birkenstock v. Commissioner, T.C. Memo. 1979-201↩