Rosebrough v. Commissioner

MEMORANDUM OPINION

GERBER, Judge: Respondent determined deficiencies of $18,354.22 and $22,334.97 in petitioners' 1977 and 1978 Federal income tax, respectively. After concessions ¹ the issues presented for consideration are: (1) Whether petitioners are entitled to deduct certain claimed "advanced minimum royalties" under section 1.612-3(b)(3), Income Tax Regs.; and (2) whether damages should be awarded, sua sponte, under section 6673. ²

*286 All of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated by this reference. ³

Petitioners, James W. Rosebrough and Karen K. Rosebrough, resided in Indianapolis, Indiana, at the time they filed the petition in this case. Petitioners filed their 1977 and 1978 joint Federal income tax returns with the Internal Revenue Service Center in Memphis, Tennessee.

On their return, petitioner-husband's occupation is listed as "Executive" and petitioner-wife's is listed as "Housewife." This case grows out of the involvement of petitioner-husband in the now-familiar coal lease shelter with a minimum annual royalty payment, most of which is "paid" by means of a nonrecourse note exclusively payable from mining receipts. During 1977, petitioner entered into a coal lease with Wyoming and Western Coal Reserves, Inc. (WW) (lessor), which lease gave petitioner the right to mine merchantable coal at a specific location in Wyoming. The same parties simultaneously executed an "Addendum to Mining Lease." Pursuant to the Addendum, petitioner, as lessee, was given*287 the option of paying the $45,000 royalty specified in the lease either by cash or a nonrecourse note. The nonrecourse note was to be repaid only from coal mined in excess of the initial 36,000 tons. Petitioner also entered into a "Contract for the Sale of Coal" with Coal & Minerals Leasing & Development Corporation (CM), whereby petitioner paid a portion of the "minimum annual royalty payment" with his own personal check and borrowed the remaining amount from CM by signing a nonrecourse promissory note. In exchange for petitioner's nonrecourse promissory note, CM issued a check to petitioner, which petitioner negotiated to WW pursuant to an "Authorization to Negotiate." No coal was mined or produced from petitioner's leased mining claim in 1977 or 1978.

All of the transactional documents petitioner executed, including the "Mining Lease," the "Addendum to Mining Lease," the "Non-Recourse Promissory Note," the "Authorization to Negotiate," and the "Contract for the sale of Coal," are the same as in Oneal v. Commissioner, 84 T.C.     (June 4, 1985) and the cases cited therein dealing with Wyoming and Western Coal Reserves, Inc., and Coal & Minerals Leasing & Development Corporation. *288 The only material difference is the amount of money "invested" and the amount of deductions claimed with respect to the "leased" property.

For both 1977 and 1978 taxable years, petitioners deducted royalties in the amount of $45,000 on Schedule C of their returns as an expense petitioners incurred as lessess of a coal mine. Respondent, in his notice of deficiency, disallowed petitioners' claimed coal mining deductions in full.

Petitioners have not presented any additional facts nor legal arguments other than those we considered in Oneal v. Commissioner,supra. We find that Oneal v. Commissioner,supra, and the cases cited therein, are controlling. Thus, we conclude that petitioners are not entitled to any deductions with respect to the coal lease. In addition, upon review of this record, we find that petitioners' positions are frivolous and groundless and that this proceeding was instituted and maintained primarily for delay. Despite the many times that this Court has decided the same issues petitioners raise and the clear and established precedent in this area, petitioners do not present any new arguments or attempt to factually or legally distinguish their*289 case. We award damages to the United States under section 6673 ⁴, sua sponte, in the maximum amount of $5,000.

To reflect the foregoing,

A decision will be entered for respondent and an appropriate order will be entered for damages under section 6673.