T.C. Memo. 2001-93
UNITED STATES TAX COURT
MANUEL G. LOPEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4744-99. Filed April 17, 2001.
Manuel G. Lopez, pro se.
Cheryl M.D. Rees, for respondent.
MEMORANDUM OPINION
POWELL, Special Trial Judge: This case is before the Court
on respondent’s motion to dismiss for failure to properly
prosecute, and motion for a penalty under section 6673.1 The
issues before the Court are (1) whether, with respect to the
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
Rule references are to the Tax Court Rules of Practice and
Procedure.
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issues for which petitioner bears the burden of proof, this case
should be dismissed for failure to properly prosecute; (2)
whether petitioner should be held in default as to the issues on
which respondent bears the burden of production and/or proof;
namely, petitioner’s liability for increased deficiencies and for
additions to tax; and (3) whether a penalty should be awarded
under section 6673.
By separate notices of deficiency issued December 7, 1998,
respondent determined deficiencies in Federal income taxes and
additions to tax as follows:
Additions to Tax
Year Deficiency Sec.6651(a)(1) Sec.6651(a)(2) Sec.6654(a)
1994 $3,334 $745.20 $678.96 $170.49
1995 5,060 1,128.37 727.17 273.52
1996 4,652 1,025.32 387.34 244.81
Background
The relevant facts may be summarized as follows. Petitioner
resided in Gordonsville, Virginia, at the time the petition was
filed.2 The petition was filed on March 11, 1999, and Richmond,
Virginia, was designated as the place of trial. In the answer
2
It is unclear whether petitioner resided in Gordonsville,
Va., or Fort Washington, Md. In the petition petitioner shows
Gordonsville, Va., as his address; however, in his amended
petition petitioner suggests that his residence was Fort
Washington, Md. It does not appear that his residence affects
any item. For purposes of appeal, both Maryland and Virginia are
within the venue of the Court of Appeals for the Fourth Circuit.
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filed May 3, 1999, respondent denied all errors alleged by
petitioner.
The Court’s Notice Setting Case for Trial and Standing
Pretrial Order were served on February 25, 2000, and this case
was calendared for trial on May 15, 2000. In pertinent part, the
standing pretrial order states:
You are expected to begin discussions as soon as
practicable for purposes of settlement and/or preparation of
a stipulation of facts. * * * All minor issues should be
settled so that the Court can focus on the issue(s) needing
a Court decision.
* * * * * * *
If any unexcused failure to comply with this Order
adversely affects the timing or conduct of the trial, the
Court may impose appropriate sanctions, including dismissal,
to prevent prejudice to the other party or imposition on the
Court.
* * * * * * *
To effectuate the foregoing policies and an orderly and
efficient disposition of all cases on the trial calendar, it
is hereby
ORDERED that all facts shall be stipulated to the
maximum extent possible. All documentary and written
evidence shall be marked and stipulated in accordance with
Rule 91(b), unless the evidence is to be used to impeach the
credibility of a witness. * * * If a complete stipulation of
facts is not ready for submission at trial, and if the Court
determines that this is the result of either party’s failure
to fully cooperate in the preparation thereof, the Court may
order sanctions against the uncooperative party. Any
documents or materials which a party expects to utilize in
the event of trial (except for impeachment), but which are
not stipulated, shall be identified in writing and exchanged
by the parties at least 15 days before the first day of the
trial session. The Court may refuse to receive in evidence
any document or material not so stipulated or exchanged,
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unless otherwise agreed by the parties or allowed by the
Court for good cause shown. It is further
* * * * * * *
ORDERED that all parties shall be prepared for trial at
any time during the term of the trial session unless a
specific date has been previously set by the Court. * * *
When this case was called on May 15, 2000, petitioner and
counsel for respondent appeared. In violation of the standing
pretrial order, petitioner had not cooperated with respondent in
preparing this case for trial. No stipulation of facts had been
signed despite respondent’s efforts and petitioner’s
representations that he would enter into a stipulation. Also in
violation of the standing pretrial order, petitioner had with him
at least five boxes of records many of which had not been
previously made available to respondent.
The parties agreed in open court that petitioner’s filing
status for the years in issue was married filing jointly.
Petitioner’s wife, Rafaela B. Lopez, stated in open court that
she consented to this treatment. Because this case was not ready
for trial, the Court continued the matter for trial to be held in
Washington, D.C., within 90 days. The Court ordered that
petitioner cooperate with respondent in preparing this case for
trial and provide his records in an organized fashion to
respondent. The Court also ordered that the parties meet
immediately after the calendar call to facilitate negotiations
and arrange for the exchange of documents. This case was
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subsequently recalendared for trial at Washington, D.C.,
commencing on September 19, 2000.
In subsequent meetings and negotiations with respondent,
petitioner did not produce all of his records to respondent, and
the records that were produced were tendered in an unorganized
fashion. As a result, on June 12, 2000, respondent commenced
formal discovery in the form of requests for admissions.
On July 6, 2000, Frank A. Thomas III (Mr. Thomas), entered
an appearance as counsel for petitioner. Pursuant to
petitioner’s motion for continuance, a further continuance was
granted, and this case was continued for trial on October 25,
2000. On July 21, 2000, petitioner filed a status report with
the Court alleging compliance with the Court’s order to produce
his records. The items provided to respondent allegedly included
summaries of petitioner’s bank accounts, purchases shown in
connection with Schedule C, Profit or Loss From Business,
inventories, work sheets used in preparation of petitioner’s tax
returns, summaries of petitioner’s Schedule E, Supplemental
Income and Loss, activities by items of expense, depreciation
schedules, other records pertaining to petitioner’s expenses, and
photocopies of petitioner’s ledgers for the Schedule C expenses.
Respondent’s status report sets forth a different version of
petitioner’s level of cooperation. Respondent stated that
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petitioner had not yet responded to respondent’s proposed
supplemental stipulation of facts or to informal requests for
information and documents. Respondent represented that only
slight progress had been made in preparing this case for trial
since the May 15, 2000, calendar call.
On August 8, 2000, petitioner served requests for admissions
and interrogatories on respondent. Petitioner failed to seek
informal discovery from respondent prior to initiating formal
discovery. See Rules 70(a)(1), 90(a); Branerton Corp. v.
Commissioner, 61 T.C. 691, 692 (1974).3 As a result, respondent
filed a motion for protective order pursuant to Rule 103(a)(2).
The Court denied that motion as moot because of subsequent
events.
In a telephone conference call held to resolve discovery
issues on August 23, 2000, the Court again ordered petitioner to
produce to respondent, on or before September 14, 2000, all
documents and records organized by year and category of expense
with the self-executing sanction that any documents or records
not produced by that date would not be allowed into evidence at
the trial scheduled to begin on October 25, 2000.
3
Requiring that parties make reasonable informal efforts
to obtain needed information voluntarily before resorting to
formal discovery.
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On August 28, 2000, petitioner moved for leave to amend the
petition. Petitioner’s motion was granted, and the amended
petition accompanying the motion was filed on August 30, 2000.
The amended petition alleges that respondent failed to consider
the tax returns for the taxable years 1994, 1995, and 1996 that
petitioner had submitted to respondent on July 7, 2000. Attached
to the amended petition are copies of the tax returns for 1994,
1995, and 1996. The tax returns are computed using the married
filing jointly filing status and are signed by petitioner and his
wife, Rafaela B. Lopez. The attached 1994 tax return is
purportedly an amended return and is signed with dates of June 18
and 20, 1996.
On September 11, 2000, respondent filed a motion to show
cause why proposed facts in evidence should not be accepted as
established. The motion sets forth allegations regarding
petitioner’s lack of cooperation with respondent. The Court
entered an order to show cause on September 15, 2000. Due to a
response from petitioner’s counsel alleging ongoing negotiations
and the subsequently filed supplemental stipulation of facts, the
order to show cause was discharged on October 12, 2000.
Respondent filed an answer to petitioner’s amended petition
on September 19, 2000. Respondent’s answer to amended petition
asserted increased deficiencies and additions to tax pursuant to
section 6214(a) as follows:
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Increased Additions to Tax1
Year Deficiency Sec.6651(a)(1) Sec.6654(a)
1994 $20,297 $4,553.05 -0-
1995 20,921 5,332.38 $1,126.95
1996 24,343 5,427.01 1,279.66
1
Respondent also seeks an addition to tax under sec.
6651(a)(2) from petitioner for the 1996 taxable year in an amount
equal to 0.5 percent of any unpaid portion of the deficiency in
Federal income tax for each month or fraction thereof from April
15, 1997, until the deficiency is fully paid, not exceeding 25
percent in the aggregate.
Petitioner stipulated that no estimated income taxes had
been paid during the years in issue.
Petitioner stipulated or admitted that he and his wife
received gross income in the following amounts:
Source of Income4 1994 1995 1996
Retirement pension-petitioner $28,368 $29,133 $29,925
Interest 96 3,780 1,880
Wife’s wages 55,359 51,268 66,964
Schedule C gross receipts
(including accrued income) 27,037 37,954 26,935
Schedule E rental income 2,570 4,700 3,800
Schedule F farming activities 600 1,453 1,500
Petitioner alleges that he incurred losses in his Schedule
C, E, and F activities during the taxable years 1987, 1988, 1989,
1991, 1992, 1993, 1994, 1995, and 1996.
Respondent conceded that petitioner substantiated the
following expenses and exclusions from income:
4
These amounts are rounded to the nearest dollar.
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Exclusions/Expenses5 1994 1995 1996
Type:
Exclusions from retirement $2,012 $2,012 $2,012
Schedule A expenses:
Real estate taxes 6,768 8,238 8,671
Medical expenses 1,301 1,560 3,013
State/Local income taxes 3,574 2,271 3,144
Personal property taxes 235 176 -0-
Schedule C expenses:
Advertising 885 2,189 -0-
Insurance -0- 987 -0-
Mortgage interest 1,625 1,490 -0-
Office expenses 475 76 -0-
Taxes/Licenses 831 563 -0-
Utilities 3,845 4,020 -0-
Wages 1,230 766 ---
Dues & Subscriptions --- 180 -0-
Water -0- 139 -0-
Schedule E rental expenses:
Real estate taxes 3,142 1,602 1,608
Water 140 -0- -0-
Electricity 34 -0- -0-
On October 25, 2000, Mr. Thomas filed a motion to withdraw
because his services had been terminated by petitioner. In
pertinent part, the motion alleges that a settlement had been
negotiated and reached in this case, with petitioner’s acceptance
communicated to respondent on October 8, 2000; however, on
October 18, 2000, petitioner refused to sign the decision
documents, dismissed Mr. Thomas, and insisted on proceeding pro
se in this case. The motion was granted. Mr. Thomas also filed
a motion to continue, which the Court denied.
5
These amounts are rounded to the nearest dollar.
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Subsequently, on October 23, 2000, petitioner filed a motion
to dismiss on the ground that petitioner wished to resolve the
underlying controversies by an “audit.” That motion was denied.
See sec. 7459(d); Johnson v. Commissioner, 116 T.C. ___ (2001)
(slip op. at 11). The Court contacted petitioner and told him
that he must appear at the scheduled trial date on October 25,
2000.
When this case was called for trial on October 25, 2000,
petitioner did not appear. Respondent filed a motion to dismiss
for failure to properly prosecute and made an oral motion to
impose a section 6673 penalty.
Discussion
Respondent’s motion to dismiss for failure to properly
prosecute falls under Rule 123. A Rule 123(b) dismissal, as a
sanction against petitioner, is available as to those issues for
which petitioner bears the burden of proof. A Rule 123(a)
default would be the proper sanction against petitioner as to
those issues for which respondent bears the burden of proof. See
Smith v. Commissioner, 926 F.2d 1470 (6th Cir. 1991), affg. 91
T.C. 1049 (1988). We shall consider the appropriate sanctions
against petitioner in turn.
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A. Dismissal With Respect to Issues Where Petitioner Had the
Burden of Proof
Petitioner has the burden of proof with respect to the
determinations contained in the notices of deficiency. See Rule
142(a).
Rule 123(b) provides as follows:
(b) Dismissal: For failure of a petitioner properly to
prosecute or to comply with these Rules or any order of the
Court or for other cause which the Court deems sufficient,
the Court may dismiss a case at any time and enter a
decision against the petitioner. The Court may, for similar
reasons, decide against any party any issue as to which such
party has the burden of proof, and such decision shall be
treated as a dismissal for purposes of paragraphs (c) and
(d) of this Rule.
In Bauer v. Commissioner, 97 F.3d 45 (4th Cir. 1996), the
Court of Appeals for the Fourth Circuit considered the
application of Rule 123(b). Noting that dismissal for failure to
prosecute typically occurs where a party fails to appear at
trial, the court set forth four factors that should be considered
in determining whether to dismiss a case for failure to
prosecute: (1) The plaintiff’s degree of personal
responsibility; (2) the presence of a drawn out history of
deliberately proceeding in a dilatory fashion; (3) the amount of
prejudice caused the defendant; and (4) the effectiveness of
sanctions less drastic than dismissal. See id. at 49.
Petitioner was solely responsible for his attendance at the
October 25, 2000, trial. He was well aware of the trial date by
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communication from his former attorney, respondent, and this
Court. The resolution of this case had been delayed because
petitioner failed to cooperate with respondent in preparing the
case for trial and appeared at the initial calendar call
unprepared for trial. Petitioner’s actions in this proceeding
have prejudiced respondent in that respondent has been required
to devote hours of time trying to prepare this case for trial.
Although petitioner initially and currently appears before
this Court in a pro se capacity, we see no reason to afford him
any special protection as a pro se petitioner. The Court of
Appeals for the Fourth Circuit has noted that while “trial courts
are encouraged to liberally treat procedural errors made by pro
se litigants, especially when a technical or arcane procedural
rule is involved, such tolerance does not extend to a litigant’s
failure to appear in court without explanation or without
contacting the court beforehand.” Id. The Rules and orders of
this Court that petitioner repeatedly violated were not technical
or arcane. Furthermore, petitioner was put on notice that his
failure to appear may result in dismissal of his case.
Petitioner’s conduct leaves no alternative other than
dismissal for failure to properly prosecute. No lesser sanction
exists that would remedy petitioner’s failure to appear or
prosecute his case. Pursuant to the foregoing, all matters for
which petitioner bears the burden of proof are dismissed for
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failure to properly prosecute. Furthermore, consistent with our
finding that dismissal is appropriate under Rule 123(b), we find
against petitioner on all issues as to which petitioner bears the
burden of proof.
B. Default With Respect to Issues Where Respondent Had the
Burden of Production or Burden of Proof
Rule 123(a) provides as follows:
(a) Default: If any party has failed to plead or
otherwise proceed as provided by these Rules or as required
by the Court, then such party may be held in default by the
Court either on motion of another party or on the initiative
of the Court. Thereafter, the Court may enter a decision
against the defaulting party, upon such terms and conditions
as the Court may deem proper, or may impose such sanctions
(see, e.g., Rule 104) as the Court may deem appropriate.
The Court may, in its discretion, conduct hearings to
ascertain whether a default has been committed, to determine
the decision to be entered or the sanctions to be imposed,
or to ascertain the truth of any matter.
In light of petitioner’s conduct in this case, it is
appropriate to consider sanctions under Rule 123(a). Our Rule
123(a) is analogous to rule 55 of the Federal Rules of Civil
Procedure. By analogy to rule 55 of the Federal Rules of Civil
Procedure, the party that bears the burden of proof may be
entitled to entry of decision on default. See Bosurgi v.
Commissioner, 87 T.C. 1403, 1407 (1986). Where a taxpayer has no
demonstrable desire to continue the litigation, and “does not
think well enough of his case to defend it where the government
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has the burden of proof, this Court should default him.” Id. at
1408. As stated in Bosurgi:
To hold a trial in a case abandoned by the taxpayer is at
best an indulgence of archaic manners and at worst an insult
to the taxpayers who have a rightful claim on this Court’s
time. * * * Entry of a default judgment is appropriate upon
a determination in the sound judicial discretion of the
Court that the pleadings of the moving party set forth facts
sufficient to support the judgment. [Id.; fn. ref.
omitted.]
See also Smith v. Commissioner, 926 F.2d 1470 (6th Cir. 1991),
affg. 91 T.C. 1049 (1988).
We find that by failing to appear at trial and by violating
the standing pretrial order and numerous discovery orders,
petitioner failed to proceed as provided by our Rules and as
required by this Court. Therefore, we find petitioner in default
as to the issues for which respondent bears the burden of proof.
Nonetheless, since respondent bears the burden of proof with
respect to the increased deficiencies and the burden of
production and/or proof with respect to the additions to tax, we
must determine whether respondent has satisfied these
requirements.
1. Liability for Increased Deficiencies.
Respondent moves to increase the deficiencies for each of
the years in issue. Section 6214(a) provides:
SEC. 6214(a). Jurisdiction as to Increase of
Deficiency, Additional Amounts, or Additions to the Tax.--
Except as provided by section 7463, the Tax Court shall have
jurisdiction to redetermine the correct amount of the
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deficiency even if the amount so redetermined is greater
than the amount of the deficiency, notice of which has been
mailed to the taxpayer, and to determine whether any
additional amount, or any addition to the tax should be
assessed, if claim therefor is asserted by the Secretary at
or before the hearing or a rehearing.
In the answer to amended petition, respondent claimed
increased deficiencies for 1994, 1995, and 1996 based on the
income that petitioner and his wife received in those years.
Respondent has the burden of proof as to the increases in
deficiencies made in the answer to amended petition. See Rule
142(a); Quick v. Commissioner, 110 T.C. 172, 180 (1998);
Hendrickson v. Commissioner, T.C. Memo. 1999-357.
Petitioner stipulated or admitted that he and his wife
received the following amounts of income:
1994 1995 1996
Wages received by wife $55,359 $51,268 $66,964
Schedule C gross receipts 27,037 37,954 26,935
Schedule E rental income 2,570 4,700 3,800
Schedule F farming income 600 1,453 1,500
Based on these stipulations and admissions, respondent has proved
the receipt of the additional income underlying the increased
deficiencies raised in the answer to amended petition.
2. Respondent’s Burden of Production and Proof With Respect
to Increased Additions to Tax.
We are willing to assume, but do not decide here, that
respondent has the burden of production as to the additions to
tax in these circumstances. See sec. 7491(c). Respondent moves
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to increase the additions to tax under section 6651(a)(1) for
each of the years in issue for failure to timely file, section
6651(a)(2) for 1996 for failure to timely pay,6 and section
6654(a) for 1995 and 1996 for failure to pay estimated income
taxes.7
Section 6651(a)(1) provides for an addition to tax where a
return is not timely filed “unless it is shown that such failure
is due to reasonable cause and not due to willful neglect”.
Similarly, section 6651(a)(2) provides for an addition to tax
where payment of tax is not timely “unless it is shown that such
failure is due to reasonable cause and not due to willful
neglect”. On the other hand, section 6654(a) provides for an
addition to tax “in the case of any underpayment of estimated tax
by an individual”. Section 6654 does not provide relief for
reasonable cause.
Respondent attached to the motion to dismiss for failure to
properly prosecute a Form 3050 (Certification of Lack of Record)
indicating that as of May 26, 2000, respondent did not have in
his possession a Form 1040 (U.S. Individual Income Tax Return)
for petitioner’s 1994, 1995, or 1996 taxable years. Also
6
Respondent concedes that petitioner is not liable for
the additions to tax under sec. 6651(a)(2) for 1994 and 1995.
7
Respondent concedes that petitioner is not liable for an
addition to tax under sec. 6654(a) for 1994.
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attached to respondent’s motion was a Form 2688 (Application for
Additional Extension of Time to File U.S. Individual Income Tax
Return) signed by petitioner and his wife on April 10, 1997, in
which petitioner and his wife request additional time to file
their 1994 tax return. Furthermore, petitioner stipulated that
neither he nor his wife made estimated tax payments, and the
withholding shown on the submitted returns was minimal.8 This
evidence is sufficient to satisfy respondent’s burden of
production and shift the burden of production to petitioner as to
the additions to tax asserted in the notices of deficiency.
With respect to the increased additions to tax under section
6651(a)(1) for the years in issue, section 6651(a)(2) for 1996,
and section 6654(a) for 1995 and 1996, the same evidence is
sufficient to satisfy respondent’s burden of proof under Rule
142. Respondent’s determinations with respect to the increased
additions to tax are sustained.
C. Section 6673 Penalty
Respondent orally moved to impose a penalty against
petitioner under section 6673. Section 6673(a)(1) authorizes the
Tax Court to require a taxpayer to pay to the United States a
8
The Forms W-2 (Wage and Tax Statement) for 1994, 1995,
and 1996 show that petitioner’s wife had $2,416.48, $91.62, and
$222.20, respectively, withheld from her wages. The Forms 1099-R
(Distribution From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc.) for 1994, 1995,
and 1996 show that petitioner had $22.20, $45.70, and $95.80,
respectively, withheld from his retirement pension.
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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 gravamen of
respondent’s motion is that petitioner has maintained this
proceeding primarily for delay.
We begin by observing that whatever is said does not reflect
on the representation provided by Mr. Thomas. In our conference
calls with Mr. Thomas and respondent, it appeared that Mr. Thomas
at all times was acting in a responsible and good faith fashion
to bring this matter to a close either by trial or settlement.
This being said, however, we are still left with a decidedly
uncomfortable view of petitioner’s conduct throughout this
proceeding.
Petitioner failed to file returns for the years in issue.
After the case was docketed in this Court, petitioner ignored the
standing pretrial order and refused to cooperate in preparing
this case for trial to the extent that at the initial calendar
call this case either could have been dismissed for failure to
properly prosecute or continued. We gave petitioner the benefit
of doubt at that time and continued the case. Even then, until
Mr. Thomas entered an appearance, petitioner refused to obey the
orders of the Court. Mr. Thomas was successful in negotiating a
settlement in which petitioner initially concurred. On the eve
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of the trial, petitioner reneged on the settlement and dismissed
Mr. Thomas. Petitioner then filed a motion to “withdraw” his
petition without prejudice that was without any basis in law or
fact. Finally, on the date of trial, petitioner refused to
appear even though he had been informed that he must appear.
A review of the record satisfies us that petitioner has
maintained this case primarily for delay. The Court’s time and
resources have been wasted. In view of the foregoing, we shall
exercise our discretion under section 6673(a)(1) and require
petitioner to pay a penalty to the United States of $2,000. See
Funk v. Commissioner, T.C. Memo. 2000-169.
To reflect the concessions of the parties,
An appropriate order will
be issued, and decision will be
entered under Rule 155.