T.C. Memo. 1997-462
UNITED STATES TAX COURT
MICHAEL S. PALMER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14177-95. Filed October 9, 1997.
Michael S. Palmer, pro se.
Roslyn D. Grand, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined deficiencies and
additions to tax in petitioner's income tax as follows:
Additions to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6654
1992 $34,553 $8,638 $1,509
1993 31,360 7,840 1,314
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The issues for decision are:
1. Whether petitioner may deduct business expenses in the
amount of $70,170.68 for 1992 and $58,369.81 for 1993, as
petitioner contends; $17,924 for 1992 and $16,004 for 1993, as
respondent contends; or some other amounts. We hold that
petitioner may deduct business expenses of $17,924 for 1992 and
$16,004 for 1993.
2. Whether petitioner is liable for the self-employment
tax imposed by section 1401 for 1992 and 1993. We hold that he
is.
3. Whether petitioner is liable for the addition to tax
for failure to file under section 6651(a)(1) for 1992 and 1993.
We hold that he is.
4. Whether petitioner is liable for the addition to tax
for underpaying his estimated taxes under section 6654 for 1992
and 1993. We hold that he is.
Unless otherwise indicated, section references are to the
Internal Revenue Code. Rule references are to the Tax Court
Rules of Practice and Procedure.
FINDINGS OF FACT
A. Petitioner
Petitioner lived in Marietta, Georgia, when he filed the
petition in this case. He was married during the years in issue.
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During 1992 and 1993, petitioner did construction work as a
subcontractor for Mark A. Palmer, Inc. (MAP). MAP paid
petitioner $119,492 in 1992 and $106,695 in 1993. MAP issued
Forms 1099-Misc to petitioner showing that it had paid him
nonemployee compensation in these amounts. MAP withheld no
Federal income tax from its payments to petitioner for 1992 or
1993.
Petitioner did not file individual income tax returns for
1992 and 1993.
B. Notice of Deficiency
On April 25, 1995, respondent mailed petitioner a notice of
deficiency. In it, respondent determined that MAP's payments to
petitioner were income to him and that petitioner had business
expenses of $17,924 for 1992 and $16,004 for 1993 (15 percent of
his compensation).
Petitioner did not issue Forms W-2 (wage statements) or
Forms 1099 (income statements) to any subcontractors. Petitioner
offered into evidence no canceled checks or receipts showing that
he paid subcontractors.
OPINION
A. Petitioner's Tax Protester Contentions
Petitioner makes several tax protester arguments and
submitted related documents and other materials which purportedly
support his contention that he is not subject to Federal income
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tax. For example, petitioner contends that he is not liable for
income tax because he is a citizen of Georgia and not of the
United States. He claims that respondent lacks delegated
authority to collect tax and that the Internal Revenue Code lacks
"positive law" as its foundation. He also contends that he is
exempt from income tax because taxable gross income does not
include compensation for services. Petitioner's contentions are
merely a rehash of frivolous tax protester arguments which have
been uniformly rejected by this and other courts. Abrams v.
Commissioner, 82 T.C. 403, 406-407 (1984); Rowlee v.
Commissioner, 80 T.C. 1111 (1983); McCoy v. Commissioner, 76 T.C.
1027 (1981), affd. 696 F.2d 1234 (9th Cir. 1983). We see no need
to catalog petitioner's contentions and painstakingly address
them. See, e.g., Crain v. Commissioner, 737 F.2d 1417 (5th Cir.
1984); Solomon v. Commissioner, T.C. Memo. 1993-509, affd.
without published opinion 42 F.3d 1391 (7th Cir. 1994).
B. Unreported Income
Respondent determined that petitioner failed to report
nonemployee compensation income paid to him by MAP of $119,492 in
1992 and $106,695 in 1993. Respondent's determination is
presumed to be correct, and petitioner bears the burden of
proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933).
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The record includes copies of canceled checks written on a
MAP account in 1992 and 1993 payable to petitioner. The only
items on the checks that were not preprinted are the date,
amount, petitioner's name, and Mark A. Palmer's signature. There
are no references to invoices on the checks. The checks total
$119,492 for 1992 and $106,695 for 1993. The record includes
Forms 1099-Misc issued by MAP to petitioner that show that MAP
paid nonemployee compensation of $119,492.25 to petitioner for
1992 and $106,695.21 for 1993. Petitioner admits that MAP paid
him $119,492 in 1992 and $106,695 in 1993 as compensation for
labor. However, petitioner contends that he kept $49,321.57 of
the money MAP paid him in 1992 and $48,325.40 in 1993 and paid
the rest ($70,170.68 in 1992 and $58,369.81 in 1993) to other
people. Petitioner contends that the money he claims to have
paid to others was not income to him. Petitioner had no canceled
checks, receipts, or other documentary evidence showing that he
paid others. He did not issue any Forms W-2 or Forms 1099. He
did not call any witnesses to testify that he paid them.
Petitioner has not shown that respondent's determination of
income for the years in issue is incorrect. Even if petitioner
paid some workers for their services, his testimony is not a
sufficient basis for deciding how much he paid to them. A
taxpayer must keep adequate records from which to calculate his
or her correct tax liability. Sec. 6001; sec. 1.6001-1(a),
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Income Tax Regs. We sustain respondent's determination of
petitioner's income for 1992 and 1993.
C. Deductions
1. Background
A taxpayer may deduct ordinary and necessary business
expenses. Sec. 162. To qualify for a business deduction, a
taxpayer must show that he or she paid or incurred the expense in
carrying on a trade or business in the taxable year and that the
expense was ordinary and necessary. Commissioner v. Lincoln Sav.
& Loan Association, 403 U.S. 345, 352 (1971).
Respondent determined that petitioner had deductible
business expenses under section 162 equal to 15 percent of his
compensation; i.e., $17,924 for 1992 and $16,004 for 1993. To be
entitled to deduct more than respondent concedes, petitioner must
show that he had more business expenses than those amounts.
Petitioner contends that he may deduct amounts he paid to
others. As discussed at paragraph B, above, petitioner did not
convince us that he paid any amounts to others in the years in
issue.
2. Worker's Compensation Expense
Petitioner contends that he may deduct 12 percent of the
total amount that he claimed in the invoices he submitted to MAP
for worker's compensation insurance premiums. We disagree.
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Petitioner testified that he usually had to pay 12 percent
of his compensation to MAP because his worker's compensation
insurance policy had expired and MAP allowed him to be covered
under MAP's policy. He testified that he received 12 percent
less than the check amount because of the worker's compensation
arrangement that he had with MAP. The checks in evidence show
that petitioner cashed them and that they were paid in full.
There is no documentary evidence that petitioner gave MAP any
money for worker's compensation.
A comparison of the canceled checks that MAP paid to
petitioner with copies of invoices that petitioner submitted to
MAP shows: (a) Some checks are 12 percent less than the total of
the invoices that immediately preceded issuance of the checks,
(b) some checks were for the total amount of the invoices that
immediately preceded issuance of the checks, and (c) some checks
were for more than the total of the invoices that immediately
preceded issuance of the checks. Some of the checks do not
appear to be related to any invoices. The comparison shows that
the differences between the amounts in the invoices and checks
were $550.01 for 1992 and $6,197.49 for 1993, much less than 12
percent of the invoice amounts. The differences are considerably
less than the amounts respondent allowed. We conclude that
petitioner has failed to show that he is entitled to deduct 12
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percent of the total amounts of his invoices for worker's
compensation insurance for the years in issue.
3. Truck Expenses
Petitioner contends that he may deduct truck expenses for a
Ford truck that he bought in 1989 and used in his business.
Petitioner testified that he drove the truck about 100 miles a
day, 6 days a week, and that his use was purely for business.
However, petitioner offered into evidence no receipts or
documentation for any truck expenses. A taxpayer may not deduct
these expenses unless he or she substantiates by adequate records
or sufficient evidence corroborating the taxpayer's own statement
the amount, time and place, and business purpose of the expense.
Sec. 274(d)(4). Petitioner did not show that his truck was a
qualified nonpersonal use vehicle under section 274(d)(4),
274(i), and section 1.274-5T(k), Temporary Income Tax Regs., 50
Fed. Reg. 46033 (Nov. 6, 1985), which is exempt from the
substantiation requirements of section 274(d). We conclude that
petitioner may not deduct truck expenses for the years in issue.
4. Conclusion
Petitioner failed to carry his burden of proving that he is
entitled to deduct more than respondent allowed for the years in
issue.
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D. Self-Employment Tax
Respondent determined that petitioner is liable for
self-employment taxes under section 1401 for 1992 and 1993.
Section 1401 imposes a tax on a taxpayer's self-employment
income. Self-employment income includes the net earnings from
self-employment derived by an individual during the taxable year.
Sec. 1402(b). Net earnings from self-employment income means
gross income, less certain deductions, derived by an individual
from any trade or business carried on by the individual. Sec.
1402(a). Petitioner bears the burden of proving that he is not
liable for the taxes imposed by section 1401. Rule 142(a).
Petitioner offered no evidence or argument on this issue
other than tax protester contentions. Petitioner is liable for
the self-employment tax for 1992 and 1993.
E. Failure To File Tax Returns
Respondent determined that petitioner is liable for the
addition to tax for failure to file a return for 1992 and 1993.
Sec. 6651(a).
Section 6651(a)(1) imposes an addition to tax of up to 25
percent of the tax required to be shown on the return for failure
to timely file Federal income tax returns unless the taxpayer
shows that the failure was due to reasonable cause and not
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willful neglect. United States v. Boyle, 469 U.S. 241, 245
(1985); Baldwin v. Commissioner, 84 T.C. 859, 870 (1985); Davis
v. Commissioner, 81 T.C. 806, 820 (1983), affd. without published
opinion 767 F.2d 931 (9th Cir. 1985). To prove reasonable cause,
a taxpayer must show that he or she exercised ordinary business
care and prudence and was nevertheless unable to file the return
within the prescribed time. Crocker v. Commissioner, 92 T.C.
899, 913 (1989); sec. 301.6651-1(c)(1), Proced. & Admin. Regs.
To disprove that the late filing was due to willful neglect, a
taxpayer must prove that the late filing did not result from a
"conscious, intentional failure or reckless indifference."
United States v. Boyle, supra at 245; Estate of Newton v.
Commissioner, T.C. Memo. 1990-208.
Petitioner offered no evidence to justify his failure to
file returns for 1992 and 1993. Petitioner argues that "IRS's
claim of Failure to File Penalty can only apply to a legitimate
tax. There is no tax on compensation, therefore there is no
penalty." This argument is frivolous.
We sustain respondent's determination that petitioner is
liable for the addition to tax for failure to file a return under
section 6651(a) for 1992 and 1993.
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F. Failure To Pay Estimated Tax
Respondent determined that petitioner is liable for the
addition to tax for failure to pay estimated tax under section
6654.
The addition to tax for failure to pay estimated tax under
section 6654 is mandatory unless the taxpayer can show that he
meets one of the computational exceptions provided in section
6654(e), none of which apply here. Baldwin v. Commissioner,
supra at 871; Grosshandler v. Commissioner, 75 T.C. 1, 20-21
(1980). Petitioner offered no evidence about why he did not pay
estimated tax other than his protester arguments. We sustain
respondent's determination that petitioner is liable for the
addition to tax for failure to pay estimated tax under section
6654 for 1992 and 1993.
To reflect the foregoing,
Decision will be
entered for respondent.