Michael, Philip, and Stephanie Gatto appeal the Tax Court’s denial of two income tax deductions which they had claimed for the 1980, 1981 and 1982 tax years: (I) a deduction under 26 U.S.C. § 163 for interest on loans which had been granted to the Gattos by trusts of their own creation, and (II) a deduction under 26 U.S.C. § 174 for research expenditures incurred by certain research and development partnerships in which they were limited partners. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.
I.
THE INTEREST DEDUCTIONS
In December, 1981, Michael Gatto created a trust with the assistance of attorney Dennis DiRicco and irrevocably transferred to the trust a sum of cash as trust corpus. The beneficiaries of the trust were Gatto’s niece and nephew. DiRicco served as trustee. The trust followed the pattern of what is commonly referred to as a “Clifford Trust.”
See Martyr v. Commissioner,
Once created, Gatto made numerous transfers to the trust, ranging from $2,000 to $10,020. Soon after Gatto made each transfer, DiRicco would return the cash to Gatto in exchange for promissory notes bearing an interest rate of 20 percent.
1
On December 16, 1982, Gatto paid $4,400 of interest due on one such note and deducted the amount on his 1982 income tax return. The Commissioner disallowed Gatto’s deduction, and the Tax Court affirmed.
See Martyr,
It appears that Philip and Stephanie Gatto created the same kind of trust, borrowed money from the trust in the same manner, claimed the same kind of deduction, and had that deduction disallowed by the Commissioner. The specific facts regarding Philip and Stephanie Gatto, however, were not established by the Tax Court. Unlike Michael Gatto, Philip and Stephanie Gatto entered a stipulation binding themselves to the result on this issue in a related case. The stipulation of March 6, 1988, read in relevant part:
12. With respect to the claimed interest deduction issue for 1980,1981 and 1982 set forth as adjustment (d) in the statutory note (Exhibit 4-D), the parties agree to be bound by the final decision made on the interest deduction issue in the case of Eddie S. and Janice Fink, Docket No. 21099-86 [95 T.C. 467 ,1990 WL 160996 ],
A.
We must first address the question of whether Stephanie and Philip Gatto may appeal a decision of the Tax Court to which they bound themselves by written stipulation. We conclude that they may not.
In
Tapper v. Commissioner,
We are not persuaded by these arguments. It follows from our decision in Tapper that a party implicitly surrenders its right to appeal a civil judgment, on other than jurisdictional grounds, by consenting to be bound by that judgment. An explicit waiver of appeal rights is not necessary. In this case, the stipulation is unambiguous. It binds the Gattos to the Tax Court’s decision in Fink. The Gattos do not dispute the fact that they consented to the stipulation, nor do they challenge the jurisdiction of the Tax Court to enter a judgment against them. We conclude, therefore, that they are bound by that judgment.
Additionally, we are unwilling to entertain the Gattos’ argument that their consent was conditioned upon the oral assurance of the Commissioner’s counsel that they would retain the right to appeal. Because this assertion is raised for the first time on appeal, there are no factual findings regarding its veracity. When the Gattos entered the stipulation, they were represented by counsel. Indeed, it was their lawyer who signed the document. If their consent was conditional, it was the responsibility of their attorney to insure that the written stipulation indicated that fact.
B.
Michael Gatto, in contrast, did not enter into such a stipulation. Consequently, we must decide whether he was entitled to an income deduction under 26 U.S.C. § 163 for interest paid on loans made by the trust that he had created. The Tax Court ruled the deductions improper after concluding that the interest was not incurred on genuine indebtedness, and we agree.
Section 163(a) of the Internal Revenue Code provides a deduction for “all interest paid or accrued within the taxable year on indebtedness.” 26 U.S.C. § 163(a). “Courts have defined indebtedness to mean an unconditional and legally enforceable obligation .... ”
Linder v. Commissioner,
A Tax Court case has considered the de-ductibility of interest under circumstances similar to those of this case.
Wilken v. Commissioner,
In order to assess the enforceability of obiigations, courts refer to the law of the state in which the transaction occurred.
Linder,
a gift of the donor’s own note is not enforceable by the donee against the donor or his estate, in the absence of an estoppel, for the reason that it only amounts to a promise to make a gift in the future, and is no more enforceable than any other promise to make a gift.
Coon v. Shry,
The Tax Court found that Michael Gatto’s transactions were similar to those at issue in Wilken. Viewing each donation of money to the trust and each subsequent “loan” of the money back to Gatto as an integrated transaction, the Tax Court reasoned that Gatto had in essence donated to the trust a promise to make a gift of money in the future. Because such a promise is unenforceable under California law, the Tax Court concluded that Gatto had not incurred genuine indebtedness and ruled his interest deduction improper.
Michael Gatto does not dispute the Tax Court’s underlying factual conclusions, but instead urges us to look at the form of the transactions and treat them as independent events: (1) the irrevocable gift of money to a trust and (2) the loan of money in exchange for interest. In support of his position, Gatto cites a California ease which enunciates the requirements of a completed gift and argues that his contributions to the trust satisfied these requirements.
See Connelly v. Bank of America,
II.
THE RESEARCH AND DEVELOPMENT DEDUCTIONS
Between 1980 and 1982, appellants invested in a number of limited partnerships whose stated purpose was the development and exploitation of various new technologies. Subsequent to their investments, appellants claimed income tax deductions under 26 U.S.C. § 174(a)(1) for a distributive share of the research and experimentation expenses incurred by each of the partnerships. The Commissioner disallowed the deductions, contending that the partnerships had not incurred their research expenditures in connection with an existing or prospective business of their own, as required by the statute.
See
26 U.S.C. § 174(a)(1);
Snow v. Commissioner,
The disposition of this issue is controlled by our recent decision in
Kantor v. Commissioner,
Appellants contend, as did the appellants in
Kantor,
that the involvement of the general partners in the development and marketing of the technologies was sufficiently regular and substantial to establish the partnerships as businesses and thereby satisfy section 174. The Tax Court properly rejected this argument. The Tax Court found that “[a]ny involvement by the general partners was either insignificant or was directed at investment management.”
Martyr,
AFFIRMED.
Notes
. According to the Tax Court, Michael Gatto made the following deposits and withdrawals through January 3, 1984:
Deposits Withdrawals
Date Amount Date Amount
12/12/81 $10,020 12/14/81 $10,000
12/16/81 2,000 1/5/82 2,000
11/15/82 10,000 11/16/82 (total) 10,000
12/16/82 4,400 1/5/83 4,400
12/18/83 3,960 1/3/84 3,960
Martyr,