MEMORANDUM FINDINGS OF FACT AND OPINION
GERBER, Judge: Respondent determined a deficiency of $33,892 in petitioners' 1977 Federal income tax. 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 under section 6673. 1
FINDINGS OF FACT
All of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated by this reference.
Petitioners, Vikram H. Kaji and Andrea L. Kaji, resided in Yardley, Pennsylvania, at the time they filed the petition in this case. Petitioners filed their 1977 joint Federal income tax return with the Internal Revenue Service Center in Philadelphia, Pennsylvania. On their return, petitioners described their occupations as "physician" and "nurse" and deducted royalties in the amount of $67,500 on Schedule C as lessees of a coal mine. References to petitioner in the singular will be to Vikram H. Kaji.
This case presents the now-familiar coal lease shelter with a minumum annual royalty payment, most of which is "paid" by means of a nonrecourse note exclusively payable from mining receipts. On December 30, 1977, petitioner entered into a coal lease with Wyoming and Western Coal Reserves, Inc. (WW), which lease gave petitioner the right to mine merchantable coal at a specific location in Wyoming. In consideration for entering into the "Mining Lease," petitioner agreed to pay WW a $1,000 lease deposit and a minimum annual royalty payment of $67,500.The minimum annual royalty was to be paid out of the amount received from coal sold or mined, removed and marketed.
In addition to the "Mining Lease," petitioner entered into an "Addendum to Mining Lease" with WW. Pursuant to the Addendum, petitioner, as lessee, was given the option of paying the minimum annual royalties provided in the lease either by cash or nonrecourse note. If payment by note was desired, then the Addendum provided that petitioner was to pay WW on this nonrecourse note from all coal mined from the leased premises in excess of 54,000 tons. Total balance of principal and interest was due and payable on December 31, 1997.
Petitioner paid one-quarter ($16,875) of the 1977 "minimum annual royalty payment" with his own check dated "December 6, 1977." Petitioner then borrowed the remaining amount ($51,625, which includes the $1,000 lease deposit) from Coal & Minerals Leasing & Development Corporation (CM). 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." Petitioner simultaneously entered into a "Contract for the Sale of Coal" with CM under which petitioner agreed to sell economically recoverable coal reserves to CM. Payment under the contract was to be made on December 31, 1987. However, CM was granted the right to extend this payment date until December 31, 1997. Payments of principal and interest prior to December 31, 1987, were to be made exclusively from receipts of coal mined, removed, and marketed. The contract also provided that as additional inducement for petitioner's entering into this contract, CM agreed to lend petitioner $51,625 to be repaid under the terms of the above promissory note and further agreed to lend another $50,625 to petitioner in 1978.
The transactional documents executed by petitioner, 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," appear to be part of a preprinted promotional package. No coal was mined or sold on the property petitioner leased during the year 1977.
On their joint 1977 income tax return, petitioners attached a Schedule C for petitioner's coal mining business and claimed a deduction of $67,500 for 1977 as a minimum royalty with respect to the WW lease. Respondent, in his notice of deficiency, disallowed petitioner's claimed coal mining deduction in full.
OPINION
With the exception of the amounts "invested," the factual pattern in this case is identical to those in Oneal v. Commissioner, 84 T.C. (June 4, 1985); Ward v. Commissioner,T.C. Memo. 1984-570 (On appeal, 9th Cir., Jan. 14, 1985); Thompson v. Commissioner,T.C. Memo. 1984-337; and Walls v. Commissioner,T.C. Memo. 1983-504. In fact, in all these prior cases and this case, similar arrangements were entered into with the same Wyoming and Western Coal Reserves, Inc., and with the same Coal & Minerals Leasing & Development Corporation. The only differences are the amounts involved and minor variations in some detail. The documents executed by petitioner in this case are identical to those set forth in Oneal,Ward,Thompson, and Walls, even down to the numbering of the paragraphs. We held in those cases that the deduction claimed as "advanced mineral royalties" was not allowable under the amended provisions of section 1.612-3(b)(3), Income Tax Regs., because no coal was produced in the relevant year.
This Court and two circuit courts of appeal have upheld the validity of amended section 1.612-3(b)(3), Income Tax Regs.Wendland v. Commissioner,739 F.2d 580 (11th Cir. 1984); Redhouse v. Commissioner,728 F.2d 1249 (9th Cir. 1984); Wing v. Commissioner,81 T.C. 17 (1983); Wendland v. Commissioner,79 T.C. 355 (1982), affd. 739 F.2d 580 (11th Cir. 1984), affd. sub nom. Redhouse v. Commissioner,728 F.2d 1249 (9th Cir. 1984).
Petitioners attack the validity of the regulations but do not present any new or different arguments.For example, petitioners argue that the doctrine of legislative reenactment invalidates the regulations.2 Second, petitioners argue that the regulations are invalid because the Internal Revenue Service failed to comply with the Administrative Procedures Act and the Service's own rules by establishing an effective date and suspending two revenue rulings in a news release, by not publishing the amended regulation at least 30 days before its effective date, by abusing its discretion under section 7805 and retroactively amending the regulations and by arguing that the general provisions of section 7805 control over a more specific section, such as section 612. Petitioners argue that all of these procedural attacks invalidate the regulations or that at least one of these attacks is sufficient to invalidate the regulations. This Court, however, has on several prior occasions confronted all of petitioners' arguments and has rejected them. Wendland v. Commissioner,supra; Wing v. Commissioner,supra;Surloff v. Commissioner,81 T.C. 210 (1983); Elkins v. Commissioner,81 T.C. 669 (1983). Due to the extensive rationale already set forth in the above-referenced opinions, nothing would be served to restate it here. We conclude that the regulations are valid, relying on the cases cited above.
Petitioners next argue that the royalties were paid pursuant to a minimum royalty provision as provided in section 1.612-3(b)(3), Income Tax Regs.3 Under the regulation, if no mineral product is produced during a given year, then no royalty deductions are allowed in that year unless royalties are paid or accrued as a result of a provision in the lease requiring that substantially uniform royalties be paid each year of the lease. In the instant case, no coal was mined or sold during 1977 on the property petitioner leased. Thus, in order for the royalty payment of $67,500 "paid" by petitioner to be deductible in 1977, the payment must have been made pursuant to a valid minimum royalty provision.
Respondent argues that, because petitioner was not required to make annual royalty payments in the absence of mineral production, the payment by petitioner does not satisfy the requirements set forth in section 1.612-3(b)(3), Income Tax Regs. In support of his position, respondent relies on the "Addendum to Mining Lease" which allows petitioner to make future annual royalty payments by the execution of a nonrecourse note. Under the terms of such nonrecourse note, payment would only be made from all coal mined in excess of the initial 54,000 tons.
On several occasions we have addressed the question of whether a nonrecourse note constitutes payment for purposes of the minimum royalty provision under section 1.612-3(b)(3), Income Tax Regs.Wing v. Commissioner,supra;Thompson v. Commissioner,supra;Walls v. Commissioner,supra;Maddrix v. Commissioner,83 T.C. 613, 620-626 (1984). 4 In all of these cases, the taxpayers satisfied their obligation to pay an advance minimum royalty by executing an agreement where the taxpayer transferred some cash and signed a nonrecourse promissory note in the balance amount payable generally in 10 years. The Government argued in these cases that the provision at issue did not constitute a "minimum royalty provision" because it allowed the taxpayer to defer the balance of the royalty for some years through the execution of a nonrecourse note, rather than requiring payment each year. See also Vastola v. Commissioner, 84 T.C. (May 21, 1985).
In adopting the Government's position that the provision in question did not constitute a valid "minimum royalty provision," we stated in Wing v. Commissioner,supra at 40-41, that:
To qualify for the deduction, the petitioner must meet the terms of the regulation, which sets out that a minimum royalty provision must require payment at least annually. That the note may in fact be paid at some later date is not sufficient to establish the existence of such a requirement.
Our holdings and logic in Wing,Maddrix, and Vastola are squarely on point and clearly apply to the instant case. The "Addendum to Mining Lease" executed by the parties authorized the payment of all future annual minimum royalties for 1977 and subsequent years by means of nonrecourse notes due on December 31, 1997, with payment required only when coal in excess of the initial 54,000 tons was produced. Thus, regardless of the likelihood of the eventual satisfaction of such notes, the "Addendum to Mining Lease" permitted deferral of the minimum annual royalties provided for in the "Mining Lease" for the years 1977 and thereafter so that payment was not required to be made at least annually. Consequently, the $67,500 "payment" made by petitioner in 1977 was not made pursuant to a valid "minimum royalty provision" in accordance with valid section 1.612-3(b)(3), Income Tax Regs.
The next issue we must decide is whether damages shall be awarded under section 6673. 5 Petitioners through their counsel do not make any new arguments. Moreover, no attempt was made to factually or legally distinguish their case from the clear and established precedent in this area and with this Court. Indeed, no difference exists. This case involves the same Wyoming and Western Coal Reserves, Inc., that has been involved in several prior adjudications of this Court. Petitioners' counsel was also counsel for taxpayers in Ward v. Commissioner,supra, 6 that involved the same arrangements with WW as here. Notwithstanding counsel's familiarity with the law and cases decided and published before submission of this case for our consideration, petitioners through their counsel present the same arguments. In fact, the briefs submitted in this case are substantially identical to other briefs and memoranda filed with this Court dealing with coal shelters. 7 The similarities are too numerous to be a coincidence. Regardless of the reasons why the briefs are substantially identical, this case has unreasonably and unnecessarily consumed precious time.
Petitioners present the same material facts dealing with WW that this Court has previously and frequently decided. Oneal v. Commissioner,supra, Ward v. Commissioner,supra,Thompson v. Commissioner,supra, and Walls v. Commissioner,supra. In addition, petitioners repetitiously raise the same issues already decided in Wendland v. Commissioner,supra, Redhouse v. Commissioner,supra,Wing v. Commissioner,supra,Thompson v. Commissioner,supra, and Walls v. Commissioner,supra.See also Vastola v. Commissioner,supra. Petitioners, however, have not presented any new or meritorious arguments to distinguish their case from the previously litigated and existing precedent. In fact, the same prepackaged and preprinted forms employed in the prior cases were used here as well as the briefs that appear to be prepackaged. The only difference is the amount of money "invested" and, more importantly, the amount of deductions claimed.
It is apparent from the facts of this case that petitioners were involved in an abusive tax shelter.Essentially, petitioners have claimed a 4-to-1 "leveraged" deduction based upon nonrecourse financing which is payable out of production, if any. This is tantamount to purchasing a $4 tax deduction with every dollar paid to a promoter who provides a facade of a legitimate enterprise to satisfy the form of the transaction. This type of arrangement frustrates the congressional purpose inherent in the deductions that we here disallow to petitioners. In spite of numerous Court opinions squarely on point, petitioners have forced an already overburdened Court and tax system to unnecessarily consume precious resources. Petitioners, and others who participate in specious tax strategems, must accept the consequences of their actions.
The conferees in discussing damages under section 6673 stated "[t]he conferees believe that, with this amendment, the Congress has given the Tax Court sufficient tools to manage its docket, and that the responsibility for effectively managing that docket and reducing the backlog now lies with the Tax Court." H. Rept. 98-861 (Conf. Rept.) (1984), 1984-3 C.B. (Vol. 2) 1, 239. Congress also noted with approval the steps that this Court has taken in the tax shelter and tax protester areas and stated that this "Court should take further action in these two areas, as well as assert, without hesitancy in appropriate instances, the penalties that the Congress has provided." H. Rept. 98-861, supra at 239.
We also have stated in Elliott v. Commissioner,84 T.C. 227, 248 (1985), that "[a]t some point, the arguments in these highly leveraged tax avoidance (or evasion) schemes must be regarded as 'frivolous or groundless,'" citing section 6673. We have frequently found that cases based upon meritless contentions and stale arguments, as petitioners through their counsel raise, are burdensome both on this Court and upon society as a whole. See Abrams v. Commissioner,82 T.C. 403 (1984). The time spent upon this case has delayed other cases of merit which could have provided new precedents to the tax system. Petitioners' brief, much like their abusive tax shelter "investment," was merely a prepackaged, pro forma presentation.
Upon review of this record, we find petitioners' positions frivolous and groundless and that this proceeding was instituted and maintained primarily for delay. We admonish other petitioners and their counsel not to maintain frivolous proceedings before this Court or to maintain them primarily for delay. On respondent's motion, we award damages to the United States under section 6673 in the maximum amount of $5,000.
To reflect the foregoing,
An appropriate order will be entered on respondent's motion for damages and a decision will be entered for respondent.