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Corporation Challenges $120 Million in Tax Deficiencies

DEC. 11, 2017

Belmont Interests Inc. v. Commissioner

DATED DEC. 11, 2017
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Belmont Interests Inc. v. Commissioner

[Editor's Note:

View exhibits in PDF version of document.

]

BELMONT INTERESTS INC.,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES COURT

PETITION

BELMONT INTERESTS INC. (“Petitioner”) hereby petitions for a redetermination of the deficiencies set forth by the Commissioner of Internal Revenue in the Commissioner's Notice of Deficiency dated September 6, 2017 (the “Notice”), and as the basis for its case alleges as follows:

I.

Petitioner is a Delaware corporation with a mailing address at 2999 Turtle Creek Boulevard, Dallas, Texas 75219.

II.

Petitioner's Employer Identification Number is listed on Form 4, Tax Court Rules of Practice and Procedure, attached hereto.

III.

Pursuant to Rule 20(c), Tax Court Rules of Practice and Procedure, Petitioner's Ownership Disclosure Statement (Form 6 of the Tax Court's Rules of Practice and Procedure) is attached hereto.

IV.

Petitioner's corporate income tax returns for the Petitioner's taxable years ended December 31, 2012 and December 31, 2013, respectively, were filed with the Office of the Internal Revenue Service in Ogden, Utah.

V.

The Notice (a copy of which is attached and marked Exhibit “A”) was issued by the Office of Internal Revenue at Nashville, Tennessee.

VI.

The deficiencies as determined by the Commissioner are for corporate income taxes for petitioner's taxable years 2012 and 2013 as follows, all of which are in dispute:

Taxable Year

Deficiency

December 31, 2012

$75,273,345.00

December 31, 2013

$45,121,318.00

VII.

The determination of taxes set forth in the Notice are based upon the following errors:

Tax Year 2012 Errors

1. The Commissioner erred in determining Petitioner had an increase to “Other Income” in the amount of $226,918,186.00 for the Petitioner's tax year ended December 31, 2012.

2. The Commissioner erred in determining that deductions of interest accrued and not paid in prior years generated a tax benefit for Petitioner that must be recovered and included as “Other Income” for tax year 2012 in the amount of $223,562,275.00 (or any other amount)

3. The Commissioner erred in determining Petitioner is entitled to an increase to charitable contributions of $47,937.00 due to adjustments to “Other Income” referenced in paragraphs 1 and 2, supra, for the Petitioner's tax year 2012.

4. Because the Commissioner erred in regard to the proposed adjustments to income as set forth in paragraphs 1 and 2, supra, the Commissioner also erred in determining hat Petitioner is entitled to absorb a deduction for net operating loss in the amount of $5,151,381.00 for the Petitioner's tax year 2012.

5. The Commissioner erred in determining that there is a deficiency in Petitioner's income taxes for Petitioner's tax year 2012 in the amount of $75,273,345.00.

6. The Commissioner erred in each and every determination having the effect of increasing Petitioner's tax liability for the Petitioner's tax year 2012.

Tax Year 2013 Errors

7. The Commissioner erred in determining Petitioner had an increase to “other income” in the amount of $126,494,547.00 for the Petitioner's tax year 2013.

8. The Commissioner erred in determining that Petitioner's gross income should be increased to $135,979,168.00 (rather than $9,484,621.00 as reported) as cancellation of debt “Other Income” under the “Duty of Consistency” doctrine for the Petitioner's tax year 2013.

9. The Commissioner erred in determining Petitioner is entitled to an increase to charitable contributions of $38,936.00 due to adjustments to “Other Income” referenced in paragraphs 7 and 8, supra, for the Petitioner's tax year 2013.

10. The Commissioner erred in determining that, due to adjustments to “Other Income” referenced in paragraphs 1, 2 7 and 8, supra, Petitioner's entire net operating loss in the amount of $2,651,870.00 was absorbed in the taxable year 2012, with the result that Petitioner's net operating loss for the Petitioner's tax year 2013 should be reduced to zero; and that Petitioner's taxable income accordingly should be increased by $2,651,870.00 for the Petitioner's tax year 2013.

11. The Commissioner erred in determining that there is a deficiency in Petitioner's income taxes for Petitioner's tax year 2013 in the amount of $45,121,318.00.

12. The Commissioner erred in each and every determination having the effect of increasing Petitioner's tax liabilities for the Petitioner's tax year ended December 31, 2013.

VIII.

The facts upon which Petitioner relies, as the basis of its case, are as follows:

Tax Year 2012 — Factual Basis

13. Petitioner did not have an increase to “Other Income” in the amount of $226,918,186.00 for the Petitioner's tax year 2012.

14. Petitioner did not have accruals and deductions of interest in prior years that generated a tax benefit which must now be recovered and included into income for Petitioner's tax year 2012.

15. Petitioner is not entitled to an increase in charitable contributions of $47,937.00 for tax year 2012 due to an increase in “Other Income” as previously referenced.

16. Petitioner is not entitled to absorb a deduction for net operating loss in the amount of $5,151,381.00 for tax year 2012 due to an increase in “Other Income” as previously referenced.

17. Petitioner properly computed and reported all items of income, deduction, credit and loss with respect to petitioner's tax year 2012 on Petitioner's corporate income tax return (Form 1120) as filed.

18. The deficiency in corporate income taxes determined by the Commissioner for Petitioner's taxable year 2012 is, in whole or in part, duplicative of the deficiency determined by the Commissioner for Petitioner's taxable year 2013.

19. Petitioner does not owe additional income taxes in the amount of $75,273,345.00 (or any other amount) for Petitioner's tax year 2012.

Tax Year 2013 — Factual Basis

20. Petitioner did not have an increase to “other income” in the amount of $126,494,547.00 for the Petitioner's tax year 2013.

21. Petitioner's gross income is not subject to increase due to from cancellation of debt reportable as “Other Income” under the “Duty of Consistency” doctrine for the Petitioner's tax year 2013.

22. Petitioner is not entitled to an increase to charitable contributions of $38,936.00 for the Petitioner's tax year 2013, due to an increase in “Other Income” as previously referenced.

23. Petitioner's entire net operating loss in the amount of $2,651,870.00 was not absorbed in Petitioner's taxable year 2012, with the result that Petitioner's net operating loss be reduced to zero for the Petitioner's tax year 2013; and Petitioner's taxable income accordingly should not be increased by $2,651,870.00 for the Petitioner's tax year 2013.

24. Petitioner properly computed and reported all items of income, deduction, credit and loss with respect to petitioner's taxable year 2013, on Petitioner's corporate income tax return (Form 1120) as filed.

25. The deficiency in corporate income taxes determined by the Commissioner for Petitioner's taxable year 2013 is, in whole or in part, duplicative of deficiency determined by the Commissioner for Petitioner's taxable year 2012.

26. Petitioner does not owe additional income taxes in the amount of $45,121,318.00 (or any other amount) for Petitioner's tax year 2012.

Additional Defenses

27. Assuming (solely for the sake of argument) that any of the adjustments to Petitioner's income proposed by the Commissioner with respect to the Petitioner's 2012 tax year have any validity whatsoever, such adjustments are properly to be made in a year or years prior to Petitioner's tax year 2012, such adjustments to such prior taxable periods now being barred by applicable statutes of limitations.

28. Assuming (solely for the sake of argument) that any of the adjustments to Petitioner's income proposed by the Commissioner with respect to the Petitioner's 2013 tax year have any validity whatsoever, such adjustments are properly to be made in a year or years prior to Petitioner's tax year 2013, such adjustments to such prior taxable periods now being barred by applicable statutes of limitations.

WHEREFORE, Petitioner prays that this Court determine that there is no deficiency in Petitioner's corporate income taxes for Petitioner's taxable year 2012 or Petitioner's taxable year 2013; and grant Petitioner all such other and further relief to which it may be entitled.

Dated: November 30, 2017

Respectfully submitted,

G. Tomas Rhodus
Tax Court No. RG0218

ATTORNEY FOR PETITIONER

Gray Reed & McGraw LLP

1601 Elm Street, Suite 4600
Dallas, Texas 75201
Telephone No. (214) 954-4135
Telecopy No. (214) 953-1332
Email: trhodus@grayreed.com

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