T.C. Memo. 1998-68
UNITED STATES TAX COURT
WALTER RAYMOND WILKERSON AND SUSAN GEE WILKERSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13797-95. Filed February 19, 1998.
Walter Raymond Wilkerson, pro se.
William Henck, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GERBER, Judge: Respondent determined income tax
deficiencies, additions to tax, and a penalty in petitioners'
1988 and 1989 Federal income tax as follows:
Additions to Tax Penalty
Sec. Sec. Sec. Sec.
Year Deficiency 6651(a)(1) 6653(a)(1) 6661 6662(a)
1988 $12,230 $3,014 $927 $3,058 ---
1989 9,276 1,559 --- --- $1,855
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Section references are to the Internal Revenue Code for the years
under consideration, and Rule references are to the Tax Court
Rules of Practice and Procedure. After concessions1 by the
parties, the issues remaining for our consideration are:
(1) Whether petitioners are liable for delinquency and/or
negligence penalties for 1988 and/or 1989; and (2) whether
petitioners have shown their entitlement to depreciation of
cattle claimed on their Schedule F for 1988 and 1989.
FINDINGS OF FACT2
At the time their petition was filed, petitioners, who at
all pertinent times were married, had their legal residence at
Richmond, Virginia. Petitioners' 1988 joint Federal income tax
return was received by respondent on April 3, 1990, and had an
extended due date of August 15, 1989. Petitioners' 1989 joint
Federal income tax return was received by respondent on
1
Respondent determined that petitioners are liable for an
addition to tax under sec. 6661 for 1988. At the trial,
petitioners did not mention this part of the determination. In
addition, the parties were required to file briefs in a seriatim
pattern, with respondent filing the opening brief. Petitioners
failed to file a brief in response to respondent's opening brief,
filed Sept. 23, 1997. Due to their failure to mention the sec.
6661 issue at trial and failure to provide argument and/or
explanation regarding it on brief, we consider this issue
abandoned, and respondent's sec. 6661 determination for 1988 is
sustained.
2
The parties' stipulation of facts and exhibits are
incorporated by this reference.
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November 2, 1992, and had an extended due date of October 15,
1990. Petitioners did not file income tax returns with the
Commonwealth of Virginia for their 1988 or 1989 tax years. On
May 27, 1992, petitioners provided an unsigned Form 1040 for the
1989 taxable year to respondent's revenue agent, who was
examining petitioners' 1988 and 1989 taxable years. The
information on the unsigned May 27, 1992, and the signed
November 2, 1992, returns was the same.
Walter R. Wilkerson (petitioner) had been a certified public
accountant since 1978, and he practiced, including the
preparation of tax returns, during the years before the Court.
During February 1992, petitioner was indicted on 15 counts of
scheming to defraud by forgery on U.S. Treasury checks in
violation of 18 U.S.C. sections 2 and 510 and 11 counts of mail
fraud in violation of 18 U.S.C. sections 2 and 1341. Petitioner
pleaded guilty to one count of scheming to defraud by forgery on
a U.S. Treasury check in violation of 18 U.S.C. sections 2 and
510 and on September 30, 1992, was sentenced to serve 15 months
in a Federal penitentiary.
Petitioner deposited, into a bank account over which he had
control, a client's Federal tax refund checks in the amounts of
$27,617.17 and $22,759.07 during 1988 and 1989, respectively.
Petitioners reported $17,823.47 and $19,817.87, respectively, of
the diverted client's refund checks, as though it represented
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farming income, on Schedules F of their 1988 and 1989 Federal
income tax returns. Petitioners failed to report $9,793.70 and
$2,941.20 of the diverted refund checks on petitioners' 1988 and
1989 income tax returns, respectively. Respondent correctly
disallowed $13,367.60 of cost of goods sold claimed by
petitioners on Schedule F attached to their 1988 Federal income
tax return. Petitioners, for 1989, failed to report taxable fee
income from clients totaling $16,322. Petitioners did not fail
to report $750 in fee income from D & D Supply for 1989, as
determined by respondent.
OPINION
We first consider whether petitioners are liable for the
additions to tax under section 6651(a)(1) for their failure to
file Federal income tax returns for 1988 and 1989. Section
6651(a)(1) imposes an addition to tax for a taxpayer's failure to
file a timely return unless the taxpayer can establish that such
failure "is due to reasonable cause and not due to willful
neglect". The addition to tax is 5 percent of the amount
required to be shown on the return for each month beyond the
return's due date, not to exceed 25 percent. Sec. 6651(a)(1).
Petitioners must show that their failure to timely file
Federal income tax returns for 1988 and 1989 was due to
reasonable cause and not due to willful neglect. Rule 142(a);
United States v. Boyle, 469 U.S. 241, 245 (1985). The parties
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here have stipulated that petitioners' 1988 and 1989 joint
Federal income tax returns were not received by respondent until
more than 5 months after their due dates, as extended.
Petitioners, both of whom are experienced tax return preparers,
testified that they had also timely mailed returns to respondent,
and the returns that were received by respondent had been sent in
response to notices from respondent. Respondent had no record of
receiving any returns from petitioners for 1988 or 1989, other
than the ones that were untimely received and the unsigned
version that was received by respondent's agent. The unsigned
return received by respondent's agent would have also been more
than 5 months delinquent on the date received.
We do not accept petitioners' uncorroborated testimony that
they had timely mailed returns to respondent. They did not
provide any details concerning the preparation and mailing of the
returns and, because they also failed to file State returns,
cannot corroborate the existence of a Federal return's having
been attached to timely State returns for the same taxable
periods. Petitioners' suggestion that respondent did not receive
their allegedly timely filed returns 2 years in a row is
uncorroborated and not credible. Accordingly, we hold that
petitioners are liable for 25-percent additions under section
6651 for failing to timely file their 1988 and 1989 joint Federal
income tax returns.
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Next, we consider whether petitioners are liable for a
negligence addition under section 6653(a)(1) for 1988 and/or a
penalty under section 6662(a) for 1989. For 1988, the addition
amounts to 5 percent of any underpayment, and for 1989 the
penalty amounts to 20 percent of the portion of the underpayment
attributable to negligence. In that regard, respondent
determined that the entire underpayment is due to negligence.
Negligence has been defined as the failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).
Petitioners, one of whom is a certified public accountant
and both of whom have experience in tax return preparation,
failed to report fee income and income from other sources. In
addition, for each year, petitioners reported a portion of
diverted refund checks of a client as though it were income from
farming, from which, in 1 year, they claimed a cost of goods sold
that they now concede. Their actions belie any possibility of
reasonableness in this setting. Accordingly, we hold that
petitioners are liable for negligence for 1988 and with respect
to the entire underpayment redetermined for 1989.
Finally, petitioners claimed at trial that they are entitled
to depreciation on cattle for 1988 and 1989. In support of their
claim, petitioners produced a check and a note, each in the
amount of $12,950 and dated June 17, 1989. On the memo portion
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of the check is written the explanation "Deposit for 37 cows".
Although petitioners alleged ownership of depreciable livestock,
they have not shown such livestock was acquired. In addition,
petitioner, who is an accountant, did not provide any
depreciation schedule or other records which would show the cost,
depreciation claimed, and basis remaining of the assets.
Petitioners have also failed to show that the animals were held
for breeding or dairy purposes so as to be eligible for
depreciation. See, e.g., Rudolph Inv. Corp. v. Commissioner,
T.C. Memo. 1972-129. We accordingly hold that petitioners have
not shown their entitlement to depreciation of cattle for 1988 or
1989.
To reflect the foregoing and concessions of the parties,
Decision will be entered under
Rule 155.