T.C. Memo. 2003-291
UNITED STATES TAX COURT
RICHARD A. BRUNSMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7662-02. Filed October 16, 2003.
Richard A. Brunsman, pro se.
Lorianne D. Masano, for respondent.
MEMORANDUM OPINION
POWELL, Special Trial Judge: Respondent determined a
deficiency of $7,416 and an accuracy-related penalty under
section 6662(a)1 of $1,810 in petitioner’s 1999 Federal income
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
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tax. After concessions,2 the issues are whether petitioner is
liable for the tax on $4,403 of unreported income and the
accuracy-related penalty under section 6662(a). Petitioner
resided in Orlando, Florida, at the time the petition was filed.
Background
Petitioner was employed with Sparks-Piper Exhibits &
Environments, Inc. (Sparks-Piper) until September of 1999 when he
started employment with Czarnowski Display Services, Inc.
(Czarnowski). Petitioner remained an employee of Czarnowski for
the remainder of the 1999 taxable year. Petitioner purchased
various business items for Czarnowski, and was reimbursed for
those amounts. During 1999, Czarnowski issued 14 payments to
petitioner: 10 payments of $1,500 each and the remaining four
payments were in the amounts of $4,600, $2,500, $2,838.18, and
$1,875.95.
Sparks-Piper reported petitioner’s wages of $51,217 on Form
W-2, Wage and Tax Statement. Czarnowski reported nonemployee
compensation paid to petitioner of $26,814 on Form 1099-MISC,
2
In the notice of deficiency, respondent asserts that
petitioner received, but did not report, $26,814 of nonemployee
compensation and $550 of unemployment compensation. Petitioner
concedes that he is liable for the tax on $17,214 of
compensation, and the parties concede that petitioner is liable
for the tax on $100 of unemployment compensation. Respondent
concedes that petitioner was an employee of Czarnowski, and of
the $26,814 petitioner received, $5,197 represents reimbursement
for employee business expenses. Thus, the amount of compensation
in dispute is $4,403.
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Miscellaneous Income. Czarnowski submitted the Form 1099-MISC to
respondent; petitioner, however, alleges that he did not receive
the Form 1099-MISC. Petitioner, in preparing his 1999 Federal
income tax return, reported the $51,217 of wages from Sparks-
Piper, but he failed to report the $26,814 of compensation
received from Czarnowski.
Discussion
Unreported Income
Petitioner asserts that he is not liable for the tax on the
compensation received from Czarnowski because he did not receive
the Form 1099-MISC. Section 61(a)(1) provides that “gross income
means all income from whatever source derived, including * * *
Compensation for services”. Petitioner’s compensation from
Czarnowski falls within this category, regardless whether
petitioner received the Form 1099-MISC.
Alternatively, petitioner argues that $4,403 of the
compensation represents the sale of assets to Czarnowski. The
amount received less the adjusted bases in the assets would still
be income to petitioner. See secs. 61(a)(3), 1001, 1011.
Petitioner has the burden to establish that he sold assets to
Czarnowski and to establish his bases in the assets sold. See
Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).3
3
Sec. 7491(a) does not apply because petitioner failed to
maintain adequate records.
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While we are willing to assume that petitioner sold some assets
to Czarnowski, petitioner failed to provide any information
concerning the identity of the assets, the bases of the assets,
or when they were purchased. Without this information, we can
only find that the entire amount received constituted taxable
income to him. Respondent is sustained on this issue.
Accuracy-Related Penalty
Section 6662 imposes an accuracy-related penalty “equal to
20 percent of the portion of the underpayment” of tax
attributable to “Any substantial understatement of income tax.”
Sec. 6662(a) and (b)(2). A substantial understatement of income
tax exists if the amount of the understatement for the taxable
year exceeds the greater of 10 percent of the tax required to be
shown on the return for the taxable year, or $5,000. Sec.
6662(d)(1)(A).4
A taxpayer is relieved of the accuracy-related penalty “if
it is shown that there was a reasonable cause * * * and that the
taxpayer acted in good faith”. Sec. 6664(c)(1).5 Whether the
taxpayer acted with reasonable cause and in good faith is
determined by the relevant facts and circumstances, and, most
4
It is unclear whether, after respondent’s concessions, a
substantial understatement of income remains. We leave this
issue for resolution in the Rule 155 computations.
5
Respondent has satisfied his burden of production under
sec. 7491(c).
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importantly, the extent to which the taxpayer attempted to assess
the proper tax liability. See Neely v. Commissioner, 85 T.C. 934
(1985); Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec.
1.6664-4(b)(1), Income Tax Regs.
Petitioner argues that he had reasonable cause for the
failure to report the compensation from Czarnowski because he did
not receive the Form 1099-MISC, the receipt of which would have
“notified him of the believed inaccuracy and afforded him the
opportunity to act in accordance with such.” Petitioner held two
jobs in 1999, but he reported only the wages he received from
Sparks-Piper. Petitioner did not need to receive a Form 1099-
MISC to be alerted to the fact that he received compensation from
Czarnowski for his services.
Alternatively, petitioner claims there is substantial
authority that he was an employee, and not an independent
contractor, of Czarnowski. Section 6662(d)(2)(B)(i) provides
that “The amount of the understatement * * * shall be reduced by
that portion of the understatement which is attributable to * * *
the tax treatment of any item by the taxpayer if there is or was
substantial authority for such treatment”. Respondent has
conceded that petitioner was an employee of Czarnowski.
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Nevertheless, this concession does not relieve petitioner of his
duty to report income correctly on his return. See Grooms v.
Commissioner, T.C. Memo. 1992-291. Accordingly, we sustain
respondent’s determination.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.