1989 Tax Ct. Memo LEXIS 531 | Tax Ct. | 1989
MEMORANDUM OPINION
TANNENWALD,
All of the facts have been stipulated, and the stipulation of facts and1989 Tax Ct. Memo LEXIS 531">*533 the attached exhibits are incorporated herein by reference.
At the time of the filing of the petition herein, petitioner was incarcerated and maintained his legal residence at the Federal Correctional Institution in Petersburg, Virginia. At all times since the date of his arrest, January 8, 1986, petitioner has been incarcerated either pending trial or serving his sentence.
From January 1, 1985, until January 8, 1986, petitioner was in the business of possessing with intent to distribute, distributing, and selling illegal narcotics at a profit. On January 8, 1986, petitioner was arrested by Federal agents of the Drug Enforcement Administration on drug and other charges. Incident to petitioner's arrest and pursuant to a search warrant, the following items were seized at 408 Argyle Road, Mineola, New York: (a) $ 5,549,653 in United States currency, (b) 6 kilograms of cocaine (having a minimum wholesale value of $ 100,000), and (c) 6 kilograms of heroin (having a minimum wholesale value of $ 1,200,000).
An additional $ 10,000 cash was seized from petitioner at the time of his arrest. On January 8, 1986, prior to his arrest, petitioner went to 408 Argyle Road and removed approximately1989 Tax Ct. Memo LEXIS 531">*534 1/2 kilogram of heroin and $ 250,525 cash which he transferred to third persons.
Petitioner had dominion and control over the above items.
During the taxable year 1986, petitioner had gross receipts of $ 7,320,240 from the illegal sales of narcotics.
On February 27, 1986, respondent issued a Notice of Termination Assessment of Income Tax to petitioner. The Notice stated that petitioner's taxable year was terminated on January 8, 1986, and that on the basis of the currency and narcotics seized during the search, there was tax due in the amount of $ 3,654,711. On April 16, 1986, petitioner filed a civil action in the United States District Court for the Eastern District of New York to contest the termination assessment. The validity of the assessment was sustained.
Separately, on March 12, 1986, the United States filed a forfeiture action in the United States District Court for the Southern District of New York against the currency seized from petitioner and a codefendant at the time of their arrest and against the currency seized at 408 Argyle Road. On or about June 25, 1986, petitioner filed a claim in the forfeiture proceeding requesting that the tax attributable to the1989 Tax Ct. Memo LEXIS 531">*535 termination assessment be paid over to respondent from the currency subject to forfeiture. The United States refused to join petitioner in this effort and opposed petitioner's motion that respondent be made a party in the forfeiture action. On August 29, 1986, petitioner's motion to join respondent as a party to the forfeiture action was denied, and on October 20, 1986, all of the seized currency was ordered forfeited to the United States.
On August 26, 1986, petitioner was indicted on the charges of conspiracy and distribution of controlled substances. On January 14, 1987, petitioner was convicted of narcotics conspiracy in violation of
On June 15, 1987, respondent issued a notice of deficiency to petitioner which was essentially identical to the Notice of Termination Assessment.
Petitioner filed Federal income tax returns (Form 1040) for 1983 and 1984. Petitioner did not file a Federal individual income tax return for 1986. Petitioner1989 Tax Ct. Memo LEXIS 531">*536 was aware at all relevant times that he was obligated to file a Federal individual income tax return if his income exceeded $ 1,080. Petitioner did not seek an extension of time to file his 1986 return, and no extension of time was granted by respondent. Petitioner made no estimated tax payments in 1986.
At the outset, we note that petitioner has stipulated to $ 7,320,240 of gross receipts during the taxable year at issue. However, at no point herein does he claim any allowance for cost of goods sold as to which, in any event, there is no evidence of record. 2 Similarly, petitioner makes no claim that any portion of this amount was received in a prior taxable year, nor is there any evidence of record that such was the case. Petitioner has the burden of proof as to the underlying deficiency and the additions to tax other than those asserted in the amended answer as to which respondent has that burden. Rule 142(a). The fact that the case is fully stipulated does not relieve either party of his burden of proof.
We further note that, although only the cash was the subject of the forfeiture action in the United States District Court, it would appear that the same result was obtained at the time of seizure with respect to the cocaine and heroin pursuant to
Petitioner first argues that, because the receipt, forfeiture of currency, and seizure of controlled substances occurred in the same calendar year, he "realized no income on which he was required to return a tax." In essence, his argument is that the 81989 Tax Ct. Memo LEXIS 531">*538 days in January 1986 during which he had possession of the items in question did not constitute the requisite dominion and control to justify taxing him under
We also reject petitioner's further argument that, even if he had dominion and control, he is entitled to the benefit of the exception in
Petitioner also argues that he had no taxable income by reason of
Petitioner asserts that he should not be subject to the addition to tax under
Respondent also determined that there was a substantial understatement and that, consequently, petitioner was subject to an addition to tax under
Respondent bears the burden of proof as to the additions to tax under
Petitioner has stipulated that he knew of the obligation to file a return if he had the requisite taxable income. Further, the Notice of Termination Assessment stated that petitioner was not relieved of his obligation to file a return for his usual annual accounting period.
We think that respondent has made a prima facie case to support the imposition of additions to tax under
As was the case in
In order to reflect respondent's concession of the addition to tax under
Footnotes
1. Unless otherwise indicated, all statutory references are to the Internal Revenue Code as amended and in effect during the year in issue, and any Rule reference is to the Tax Court Rules of Practice and Procedure.↩
2. Sec. 280E disallowing deductions and credits relating to drug trafficking does not appear to apply to inventory in determining cost of goods sold. S. Rept. 97-494 at 309 (1982). Moreover, we note that, at no time, has respondent argued the applicability of sec. 280E to the instant case.↩
3. We note that in
Wood the Circuit Court of Appeals questions whether an embezzler would necessarily be entitled to a deduction in all cases. See , 863 F.2d 417">421 (5th Cir. 1989). Cf.Wood v. United States , 863 F.2d 417">863 F.2d 417 (1989).Stephens v. Commissioner , 93 T.C. 108">93 T.C. 108↩