White v. Commissioner

T.C. Memo. 1997-459

UNITED STATES TAX COURT

DAVID WHITE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10350-97. Filed October 8, 1997.

David White, pro se.

Blaise Gately Dusenberry and David W. Johnson, for

respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge Robert N. Armen, Jr., pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with

1
Unless otherwise indicated, all section references are to
(continued...)
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and adopts the opinion of the Special Trial Judge, which is set

forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

ARMEN, Special Trial Judge: This matter is before the Court

on respondent's Motion to Dismiss for Failure to State a Claim

Upon Which Relief Can Be Granted. As explained in greater detail

below, we shall grant respondent's motion.

Background

Respondent issued a notice of deficiency to petitioner

determining deficiencies in and additions to his Federal income

taxes for the years and in the amounts as follows:

Additions to tax
Year Deficiency Sec. 6651(a) Sec. 6654(a)

1992 $10,902 $1,163 --
1993 20,659 5,165 $866
1994 10,269 2,567 $533

The notice of deficiency includes an explanation that the

adjustments to petitioner's taxable income are attributable to

petitioner's failure to file tax returns reporting various items

of income including: (1) Nonemployee compensation paid by

Lincoln Investment Planning, General American Life, and Willow

Fork Drainage District; (2) interest paid by Charles Schwab &

Co., First City Texas, and Texas Commerce Bank; (3) dividends

1
(...continued)
the Internal Revenue Code in effect for the taxable years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 3 -

paid by Alger Money Market Portfolio; (4) gains derived from

stock/bond sales in 1992; and (5) prizes and awards received from

Lincoln Investment Plan in 1994. Those items of income were

reported to respondent on Forms 1099 and other information

returns submitted by the payors.

Petitioner invoked this Court's jurisdiction by filing an

imperfect petition for redetermination, followed by an amended

petition.2 The amended petition states in pertinent part:

A. The "Notice" Tax, Penalty, and Interest is in
"error" as indicated in the "Notice of Deficiency”.

B. Petitioner is not liable for said Tax, Penalty, and
Interest as indicated in said Deficiency.

C. Deficiency is based on hearsay information.

In response to the amended petition, respondent filed a

Motion to Dismiss for Failure to State a Claim Upon Which Relief

Can Be Granted. Shortly thereafter, the Court directed

petitioner to file a proper second amended petition setting forth

with specificity each error that petitioner alleges was made by

respondent in the determination of the deficiencies and additions

to tax and separate statements of every fact upon which

petitioner bases the assignments of error.

Petitioner failed to comply with the Court's order to file a

proper second amended petition. To the contrary, petitioner

2
At the time that the petition was filed, petitioner
resided in Houston, Texas. Accordingly, this case is appealable
to the Court of Appeals for the Fifth Circuit.
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filed a response to respondent's motion to dismiss in which he

asserts that respondent's motion should be stricken.

Petitioner's response states in pertinent part:

The Commissioner by her alleged Notice of
Deficiency has failed to prove that the petitioner was
engaged in any income-producing activity during the
years of the deficiency notice. Nor is there any
evidence that the respondent's determination was based
on information, other than that of presumption,
concerning petitioner's alleged income-producing
activities during the years in issue. Except for the
explanation in the notice of deficiency, there is no
evidence showing the basis for respondent's computation
of petitioner's income and there is no evidence to show
that such income has been derived from an income-
producing or revenue taxable activity. From the sparse
facts presented by the record, it is apparent that
there is no evidence presented by the Commissioner
regarding whether petitioner had taxable income during
the years in issue. Indeed, the only facts before this
Court relate to the events leading up to the notice of
deficiency and respondent's method of computing the
deficiencies. Under these circumstances, the
presumption of correctness that normally attaches to
the notice of deficiency and the proper allocation of
the burden of producing evidence and the burden of
proof become critical. The issue before this Court
that must be decided is whether these determinations
are entitled to the normal presumption of correctness
and if not, who bears the burden of proof.

The remainder of petitioner's reply is simply a long quotation of

the portion of this Court's opinion in Senter v. Commissioner,

T.C. Memo. 1995-311, discussing Portillo v. Commissioner, 988

F.2d 27 (5th Cir. 1993), revg. T.C. Memo. 1992-99, and Portillo

v. Commissioner, 932 F.2d 1128 (5th Cir. 1991), affg. in part and

revg. in part T.C. Memo. 1990-68 (collectively, the Portillo

cases).
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This matter was called for hearing at the Court's motions

session in Washington, D.C. Counsel for respondent appeared at

the hearing and argued in support of the pending motion. In

particular, respondent cited a case recently decided by the Court

of Appeals for the Fifth Circuit, Parker v. Commissioner, 117

F.3d 785 (5th Cir. 1997), for the proposition that petitioner's

contentions respecting the presumption of correctness and burden

of proof do not state a claim for relief.

Discussion

Rule 34(b)(4) requires that a petition filed in this Court

shall contain clear and concise assignments of each and every

error that the taxpayer alleges to have been committed by the

Commissioner in the determination of the deficiency and the

additions to tax in dispute. Rule 34(b)(5) further requires that

the petition shall contain clear and concise lettered statements

of the facts on which the taxpayer bases the assignments of

error. See Jarvis v. Commissioner, 78 T.C. 646, 658 (1982). Any

issue not raised in the pleadings is deemed to be conceded. Rule

34(b)(4); Jarvis v. Commissioner, supra at 658 n.19; Gordon v.

Commissioner, 73 T.C. 736, 739 (1980). Further, the failure of a

party to plead or otherwise proceed as provided in the Court's

Rules may be grounds for the Court to hold such party in default,

either on the motion of another party or on the initiative of the

Court. Rule 123(a).
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It is well settled that determinations made by the

Commissioner in a notice of deficiency normally are presumed to

be correct, and the taxpayer bears the burden of proving that

those determinations are erroneous. Rule 142(a); INDOPCO Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290

U.S. 111, 115 (1933). In addition, this Court ordinarily will

not look behind a notice of deficiency to examine the evidence

used or the propriety of the Commissioner's motives or conduct in

determining the deficiency. Riland v. Commissioner, 79 T.C. 185,

201 (1982); Greenberg's Express, Inc. v. Commissioner, 62 T.C.

324, 327 (1974).

A recognized exception to the general rule that the

Commissioner's determination is presumed to be correct arises in

cases involving unreported income where the taxpayer challenges

the notice of deficiency on the grounds that it is arbitrary and

the Commissioner fails to substantiate the determination with

predicate evidence. Sealy Power, Ltd. v. Commissioner, 46 F.3d

382, 386 (5th Cir. 1995), affg. in part, revg. in part and

remanding in part T.C. Memo. 1992-168; Portillo v. Commissioner,

932 F.2d at 1133.

Petitioner contends that, in an unreported income case such

as this case, respondent's reliance on information reported to

respondent by third-party payors on Forms 1099, standing alone,

does not provide the predicate evidence necessary to substantiate

respondent's determinations. In conjunction with this
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contention, petitioner maintains that justiciable issues remain

in this case insofar as the Court is required to decide whether

the normal presumption of correctness is applicable and to make

the proper assignment of the burden of proof.

We agree with respondent that petitioner has failed to state

a claim for relief. Viewing the amended petition in isolation,

the best that can be said is that petitioner disagrees with

respondent's determinations. However, the amended petition lacks

either a clear and concise statement of the errors allegedly

committed by respondent in the determination of the deficiencies

or a statement of the facts on which petitioner bases his

assignments of error. We observe that upon receipt of a notice

of deficiency determining unreported income, a taxpayer can

reasonably be expected to support an allegation that the

Commissioner erred in determining a deficiency in tax by stating

facts tending to show that the taxpayer was unemployed, earned a

lower amount of income, or otherwise did not receive the payments

reported to respondent by third-party payors. The amended

petition lacks any such statement.

Similarly, the arguments set forth in petitioner's reply,

i.e., that the notice of deficiency is not entitled to the normal

presumption of correctness and that respondent should bear the

burden of proof, are inadequate to state a claim for relief. We

agree with respondent that the Court of Appeals' analysis in

Parker v. Commissioner, supra, is controlling in this regard.
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As is the case here, the taxpayers in Parker failed to file

income tax returns for the years in issue, yet relied upon the

Portillo cases for the proposition that the normal presumption of

correctness should not apply to the notices of deficiency because

the Commissioner's determinations of unreported income were based

upon Forms 1099 and W-2. In rejecting this argument and

affirming this Court's dismissal of the taxpayers' case for

failure to state a claim upon which relief can be granted, the

Court of Appeals distinguished the Portillo cases as follows:

In Portillo, the IRS issued a notice of deficiency when
it discovered that the taxpayer had reported
substantially less income from a particular payor than
that payor had reported in its Form 1099. We found
that the Commissioner "arbitrarily decided to attribute
veracity to [the third-party payor] and assume that
[the taxpayer's] Form 1040 was false." [Portillo v.
Commissioner, 932 F.2d at 1134.] In Portillo, the
Commissioner's determination was arbitrary because the
Commissioner offered no factual basis for accepting one
sworn statement, the Form 1099, while rejecting another
sworn statement, the taxpayer's Form 1040.

Portillo did not hold that the IRS must conduct an
independent investigation in all tax deficiency cases.
In this case, the Commissioner has not arbitrarily
found the third-party forms credible: the Parkers
never filed a Form 1040 or any other document in which
they swore that they did not receive the payments in
question. The Commissioner has no duty to investigate
a third-party payment report that is not disputed by
the taxpayer.

Parker v. Commissioner, 117 F.3d at 786-787. We note that the

Court of Appeals concluded its opinion by imposing a penalty of

$2,000 against the taxpayers for bringing a frivolous appeal.
 - 9 -

Consistent with Parker, we hold that petitioner has failed

to state a claim upon which relief may be granted. In short,

petitioner's assertion that respondent erred in relying on

reports from third-party payors in determining the deficiencies

in dispute, standing alone, carries no weight. Therefore, we

will grant respondent's motion to dismiss and enter a decision in

this case sustaining respondent's determinations as set forth in

the notice of deficiency issued to petitioner. See Rules

34(a)(1), 123(b); Scherping v. Commissioner, 747 F.2d 478 (8th

Cir. 1984).

Section 6673(a)(1) authorizes the Tax Court to require a

taxpayer to pay to the United States a penalty not in excess of

$25,000 whenever it appears that proceedings have been instituted

or maintained by the taxpayer primarily for delay or that the

taxpayer's position in such proceeding is frivolous or

groundless. The circumstances here suggest that petitioner may

have instituted this proceeding primarily for purposes of delay.

However, we shall not now impose a penalty under section

6673(a)(1). Nonetheless we take this opportunity to admonish

petitioner that the Court shall strongly consider imposing such a

penalty if he returns to the Court and makes similar arguments in

the future.

To reflect the foregoing,

An appropriate order and

decision will be entered.