T.C. Memo. 1997-521
UNITED STATES TAX COURT
STEVEN R. GOINS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12212-95. November 18, 1997.
Steven R. Goins, pro se.
Edwina L. Charlemagne, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7443A(b) and Rules 180, 181, and 182.1
Respondent determined a deficiency in petitioner's Federal
income tax for the year 1989 in the amount of $1,849, an addition
to tax in the amount of $241 pursuant to section 6651(a)(1), and
an addition to tax of $58 pursuant to section 6654.
1
All section references are to the Internal Revenue Code in
effect for the taxable year in issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
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The issues for decision are: (1) Whether petitioner had
unreported income; (2) whether petitioner failed to file a timely
Federal income tax return; and (3) whether petitioner underpaid
his estimated tax for the year.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Greensboro, North Carolina, at the time his petition was filed.
Petitioner did not file his Federal income tax return for
the taxable year 1989.
Steven R. Goins (petitioner) is in the business of setting
tile and installing floor coverings. During 1989, petitioner was
an employee of three different floor covering companies: Marion
Tile, Inc., Brisson Flooring, Inc., and Carolina Acoustical &
Flooring, Inc. (Carolina Acoustical). Marion Tile, Inc. and
Brisson Flooring, Inc. treated petitioner as an employee, issuing
him a Form W-2 and withholding Federal income tax and Social
Security tax from his paycheck. Carolina Acoustical treated
petitioner as an independent contractor, issuing him a Form 1099
and making no tax withholdings.
In August 1990, the U.S. Department of Labor determined that
Carolina Acoustical owed four individuals back wages for a
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6-month period in 1989. One of these individuals was petitioner,
who, it was determined, was owed $1,078.99 in overtime pay.
Because Carolina Acoustical considered petitioner an independent
contractor and not an employee of the company, it did not agree
with the Department of Labor that petitioner was entitled to the
back wages. Carolina Acoustical did not pay petitioner any
additional money. The other three individuals, all of whom were
considered regular employees of the company, were paid back wages
in accord with the Department of Labor's determination.
Following Carolina Acoustical's denial of payment,
petitioner received a letter from the Department of Labor's Wage
and Hour Division in which petitioner was advised that because
Carolina Acoustical, d.b.a. The Tile Shop, had not agreed to pay
petitioner the $1,078.99, he would need to bring a private suit
to recover the money. The letter stated: "we can take no
further action to secure payment of this money to you". The
burden rested with petitioner to collect the back wages.
Petitioner's Form 1099 for taxable year 1989 reported
nonemployee compensation from Carolina Acoustical in the amount
of $11,919.17. Although Carolina Acoustical made deductions from
petitioner's weekly paychecks for items such as workmen's
compensation insurance, gasoline, wage and petty cash advances,
and loan repayments, the Form 1099 indicated that no Federal
income tax had been withheld for 1989. Petitioner's Forms W-2
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from Marion Tile, Inc. and Brisson Flooring, Inc. reflected
Federal income tax withholdings in the amounts of $58 and $826.89
respectively.
Petitioner never filed a Federal income tax return for 1989.
He contends that if Carolina Acoustical had issued him a Form W-2
instead of Form 1099, he would have filed a timely return and
paid his tax liability. He expressed concern over not receiving
a Form W-2 to Government officials at the Internal Revenue
Service (IRS), and they advised him to file a return using his
Form 1099. Despite this advice, petitioner waited for his Form
W-2, believing the Form 1099 was a mere "formality".
Upon examination, respondent determined a deficiency in
petitioner's Federal income tax of $1,849. In calculating
taxable income, respondent allowed petitioner to deduct payments
for workmen's compensation insurance, gasoline expenses, and van
rental charges as ordinary and necessary business expenses
pursuant to section 162(a).
Respondent determined, however, that miscellaneous itemized
deductions should be limited by the 2-percent floor as prescribed
by section 67(a) and that petitioner is not entitled to deduct
loan and cash advance repayments. Respondent also imposed a
section 6651 delinquency addition to tax and a section 6654
addition to tax for failure to pay estimated tax, finding that
none of the exceptions apply.
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OPINION
I. Employee's Liability for Federal Income Tax
Petitioner asks for relief from his tax liability on two
grounds. First, he requests that Carolina Acoustical be held
accountable for the tax on his wages because it improperly
characterized him as a nonemployee, thus failing to withhold any
tax from his paycheck. Second, he asks that we apply the
withheld back wages of Carolina Acoustical toward his tax
liability.
We address the improper characterization argument first. An
employer is required under section 3402(a) to withhold Federal
income tax from the wages of its employees.
Section 31(a) allows an employee to take a credit for
amounts withheld by his employer and apply it to his tax due.
The taxpayer is entitled to this credit even if the employer has
not paid the withholdings over to the Government. Sec. 1.31-
1(a), Income Tax Regs. But if the employer does not actually
withhold the tax, the employee is not entitled to a credit for
amounts which should have properly been withheld. Edwards v.
Commissioner, 39 T.C. 78, 84 (1962), affd. on this issue 323 F.2d
751 (9th Cir. 1963). The failure of an employer to withhold
income tax does not relieve the employee's obligation to pay the
tax. Church v. Commissioner, 810 F.2d 19, 20 (2d Cir. 1987).
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Even if it were assumed that Carolina Acoustical was
petitioner's employer and as such is liable for taxes it failed
to withhold from his paycheck, see sec. 3403, petitioner is also
liable for the taxes, sec. 61(a). Respondent may collect payment
from either the employee or the employer, but the employee
remains ultimately liable for his own taxes even though his
employer was obligated to withhold. In Edwards v. Commissioner,
supra at 84, this Court held as follows:
had the respondent chosen to do so, he could have
attempted to collect from the company the amount which
it was required to withhold from the settlement
payment. Respondent, however, need not do so, but may
assess the tax against the employee upon whom, in the
final analysis, the tax burden must fall. The employee
of an employer failing to properly withhold amounts for
tax is not entitled to a credit for amounts which were
never withheld from him.
Petitioner's paychecks are unambiguous as to the amounts and
purpose of each "withholding". When workmen's compensation
insurance or loan payments were deducted from his weekly wages, a
notation was made on the left side of the check that money was
being subtracted as "2.10% Wo. Comp. Ins." or deducted as a "Loan
Payment". Petitioner was notified of each deduction in this
manner, and out of the 29 paychecks received by petitioner in
1989, not one indicated a deduction for Federal income tax.
Because the evidence reflects that no income tax was
actually withheld by Carolina Acoustical, petitioner remains
ultimately liable for his own taxes, and may not be credited with
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amounts which Carolina Acoustical failed to withhold. Church v.
Commissioner, supra.
Petitioner also contends he is entitled to a tax credit for
unpaid back wages withheld from him by Carolina Acoustical. The
company's accountant, John L. Tilly, testified that Carolina
Acoustical owed four workers overtime back wages but the company
only paid the three individuals whom it considered regular
employees. Petitioner did not receive his overtime pay even
though he was subsequently determined to have employee status by
the IRS.
Petitioner may indeed be entitled to additional income from
Carolina Acoustical, but that is an issue between him and the
company. We cannot require the IRS to collect petitioner's
income from Carolina Acoustical and apply it toward his tax
liability. In effect, that would be asking respondent to enforce
petitioner's private right of action against the company in lieu
of collecting the taxes from petitioner directly.
Petitioner has come to court with the burden of proving
respondent's determinations are erroneous. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). He has not met this burden.
Petitioner did not prove that respondent's determination that he
had unreported income for 1989 is in error.
As far as petitioner's deductions are concerned, respondent
concedes that petitioner is entitled to certain deductions as
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employee business expenses, such as workmen's compensation
insurance payments, and gasoline and van rental expenses. These
deductions are, of course, allowable only to the extent they
exceed 2 percent of petitioner's adjusted gross income. Sec.
67(a). Respondent asserts, however, that petitioner is also
attempting to characterize loan and cash advance repayments as
allowable employee business expenses.
Deductions are strictly a matter of legislative grace, and
petitioner bears the burden of proving his entitlement to any
deductions claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292
U.S. 435, 440 (1934).
Petitioner has presented no evidence that amounts listed as
"loan payments" are deductible as employee business expenses.
Respondent's determinations as to petitioner's employee business
expense deductions are therefore sustained.
II. Section 6651 Addition to Tax
Section 6651(a)(1) imposes a 5-percent addition to tax each
month for failure to file a tax return. The addition is not to
exceed 25 percent in the aggregate. The statute provides a
reasonable cause exception where the taxpayer can prove the
failure to file was not due to willful neglect. Sec. 6651(a)(1).
Petitioner testified that he did not file a tax return for
1989 because his Form 1099 from Carolina Acoustical designated
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him as a nonemployee instead of an employee. He was confused as
to why Carolina Acoustical did not issue him a Form W-2 when he
worked for the company.
We do not find petitioner's testimony regarding his failure
to file persuasive. Petitioner received Forms W-2 from both
Marion Tile, Inc. and Brisson Flooring, Inc., which together paid
petitioner almost $5,500 in income. At the very least,
petitioner knew this $5,500 was reportable income. Furthermore,
petitioner was advised by officials at the IRS that he was to
file his return using the Form 1099. Petitioner has failed to
show he had reasonable cause for his failure to file a Federal
income tax return for 1989, and is liable for the section
6651(a)(1) addition to tax as determined by respondent.
III. Section 6654 Addition to Tax
Section 6654 provides for an addition to tax when there is
an underpayment of estimated tax. This addition to tax is
mandatory and automatic, subject to certain exceptions provided
by section 6654(e). Grosshandler v. Commissioner, 75 T.C. 1
(1980). Petitioner failed to offer any evidence that he fits
within any of the listed exceptions. Respondent's determination
that petitioner is liable for the section 6654 addition to tax is
sustained.2
2
Respondent has taken into account the $884.89 withheld by
Marion Tile, Inc. and Brisson Flooring, Inc. in computing the
(continued...)
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To reflect the foregoing,
Decision will be entered
under Rule 155.
2
(...continued)
sec. 6654 addition to tax. Although these withheld wages do not
reduce the amount of his deficiency, respondent will apply this
amount toward payment of the deficiency. See secs. 6211, 31(a);
sec. 301.6211-1, Proced. & Admin. Regs.