BLAND v. COMMISSIONER

T.C. Summary Opinion 2003-172

UNITED STATES TAX COURT

OUAN BLAND, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4187-01S. Filed December 30, 2003.

Ouan Bland, pro se.

Daniel N. Price, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.
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Respondent determined for 1998 a deficiency in petitioner’s

Federal income tax of $5,495 and an accuracy-related penalty

under section 6662(a) and (b)(2) of $1,099. The issues for

decision are: (a) Whether petitioner earned unreported

nonemployee compensation of $18,774; (b) whether petitioner is

liable for self-employment tax on nonemployee compensation; (c)

if petitioner did not earn nonemployee compensation of $18,774,

whether petitioner was married to James Fullen in tax year 1998

requiring her to: (1) Report one-half of the nonemployee

compensation as her income; (2) change her filing status from

single to married filing separate; and, (d) whether petitioner is

liable for an accuracy-related penalty under section 6662(a)(1)

and (d)(2).

Background

The stipulation of facts and the exhibits received into

evidence are incorporated herein by reference. Petitioner

resided in San Antonio, Texas, at the time the petition in this

case was filed.

Petitioner is from Thailand and speaks English as a second

language. During the year in issue, petitioner was employed as a

food server at a restaurant.

Petitioner electronically filed her timely tax return for

1998. She reported her wages from the food service position and
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attached a corresponding Form W-2, Wage and Tax Statement.

Petitioner received a refund of $1,041 for 1998.

1. Nonemployee Compensation

Respondent received a Form 1099-MISC, Miscellaneous Income,

from San Antonio Kitchens and Baths, Inc. (SAKB), reporting that

$18,774 in nonemployee compensation had been paid to petitioner.

The Form 1099-MISC bears a Social Security number that does not

belong to petitioner. Additionally, the envelope in which the

Form 1099-MISC was mailed bears the United States Postal Service

Stamp “Returned to Sender - Insufficient Address”.

Respondent obtained copies of the Form 1099-MISC and copies

of checks from SAKB payable to petitioner. The checks bear

endorsements which appear to be petitioner’s signature.

Respondent issued a notice of deficiency on January 10,

2001, determining that petitioner had unreported income from

services rendered to SAKB in the amount of $18,774, and asserting

an accuracy-related penalty under section 6662(a) and (b)(2) in

the amount of $1,099. Petitioner timely filed a petition with

this Court.

Prior to trial, petitioner told respondent that she did not

perform any services for SAKB, nor did she receive any

compensation from them. She advised respondent that Mr. James

Fullen, with whom petitioner lives, performed services for SAKB,
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the checks were cashed at Mr. Fullen’s request, and the proceeds

were transferred to him.

The parties filed a Joint Motion for Continuance of Trial so

respondent could investigate petitioner’s claims and issue a

notice of deficiency to Mr. Fullen. Mr. Fullen gave his Social

Security number to respondent. Respondent’s subsequent

investigation revealed there was no record in respondent’s

internal computerized system of the Social Security number Mr.

Fullen provided. Further, there is no record of Mr. Fullen

having filed Federal income tax returns between 1991 and 2001.

Petitioner failed to respond to respondent’s attempts to

obtain additional information. Respondent sent petitioner two

certified letters and left 14 messages over the course of a 6-

week period. Petitioner did not respond to any of respondent’s

attempted contacts.

Mr. Fullen was an independent contractor salesman for SAKB.

The checks were supposed to have been made payable to him.

After Mr. Fullen lost his identification, SAKB began making the

checks payable to petitioner so that Mr. Fullen would have a

vehicle through which he could receive his earnings. Mr. Fullen

explained these circumstances to respondent sometime in July

2002. During respondent’s investigation of this matter, SAKB

provided contradictory verbal statements to respondent regarding

who performed the services in question.
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The $18,774 at issue is composed of 22 separate checks.

Petitioner examined these checks and identified three of the

checks as bearing her signature. Mr. Fullen signed petitioner’s

name to many of the checks that were cashed.

Mr. Fullen admits he earned the compensation in issue and it

is he who owes the corresponding income tax. He also admits that

he has not filed a Federal income tax return for 1998. While

under oath, Mr. Fullen gave respondent his Social Security number

twice.

While petitioner and Mr. Fullen reside together, they have

never been married. Petitioner has never given anyone the

impression that she was married to Mr. Fullen.

Discussion

Respondent contends that if the Court finds that the

nonemployee compensation is not attributable to petitioner,

respondent will be placed in a classic whipsaw position because

respondent has no record of Mr. Fullen as a taxpayer.

Respondent alleges in the alternative, that if petitioner

did not earn the nonemployee compensation in issue, petitioner

was Mr. Fullen’s common law wife and, as such is liable for

income tax on one-half Mr. Fullen’s income. Respondent also

contends that under such circumstances, petitioner is required to

change her filing status from single to married filing separate.
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Respondent also determined that petitioner is liable for an

accuracy-related penalty under section 6662(a) and (b)(2) for not

reporting the nonemployee compensation on her Federal individual

income tax return.

Respondent’s determinations in the notice of deficiency are

presumed correct, and, generally, petitioner must prove those

determinations wrong in order to prevail. Rule 142(a)(1); Welch

v. Helvering, 290 U.S. 111, 115 (1933).

Where information returns, such as Forms 1099-MISC, serve as

the basis for the determination of a deficiency, section 6201(d)

may apply to shift the burden of production to respondent. See

Estate of Gryder v. Commissioner, T.C. Memo. 1993-141 (citing

Portillo v. Commissioner, 932 F.2d 1128 (5th Cir. 1991)).

Under section 6201(d), if a taxpayer, in a court proceeding,

asserts a reasonable dispute with respect to the income reported

on an information return and fully cooperates with the

Commissioner (including providing access to an inspection of all

witnesses, information, and documents within the control of the

taxpayer as reasonably requested by the Commissioner), then the

Commissioner shall have the burden of producing reasonable and

probative information in addition to such information return.

Sec. 6201(d); see McQuatters v. Commissioner, T.C. Memo. 1998-88.

Petitioner challenges the accuracy of the information

provided to respondent in the Form 1099-MISC. She contends the
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income reported on the Form 1099-MISC was earned by Mr. Fullen.

However, section 6201(d) clearly requires not only that the

taxpayer assert a reasonable dispute, but also must have fully

cooperated with the Commissioner before the burden of production

will shift to the Commissioner. Sec. 6201(d).

Assuming arguendo that petitioner did fully cooperate with

respondent, the Court concludes respondent has met his burden of

production. Respondent produced copies of checks issued by SAKB,

several of which were endorsed by petitioner. The sum total of

these checks corresponds to the amount of unreported nonemployee

compensation reported on the Form 1099-MISC. Respondent’s

reliance on the information return is adequately supported by the

check copies.

Alternatively, the burden of proof may shift to the

Commissioner under section 7491 if the taxpayer establishes

compliance with the requirements of section 7491(a)(2)(A) and (B)

by substantiating items, maintaining required records, and fully

cooperating with the Commissioner’s reasonable requests. See

Higbee v. Commissioner, 116 T.C. 438, 440-441 (2001). Section

7491 is effective with respect to court proceedings arising in

connection with examinations by the Commissioner commencing after

July 22, 1998, the date of its enactment by section 3001(a) of

the Internal Revenue Service Restructuring and Reform Act of

1998, Pub. L. 105-206, 112 Stat. 685, 726.
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Although the examination of petitioner’s 1998 individual

return commenced after July 22, 1998, respondent contends

petitioner does not meet the requirements of section 7491(a).

Petitioner does not contend otherwise. The Court concludes that

section 7491(a) is inapplicable. However, the resolution of the

issues in this case does not depend on which party has the burden

of proof. We resolve these issues on the preponderance of the

evidence in the record.

1. Nonemployee Compensation and Self-Employment Tax

Petitioner cashed checks for Mr. Fullen and transferred the

proceeds to him. She identified her signature on only three of

the checks in issue. Petitioner contends the signatures on the

remaining 19 checks are not hers. At trial, Mr. Fullen admitted

he had signed petitioner’s name to many of the checks himself.

The Court has examined the signatures on all of the checks

in issue. Having compared those signatures to the signatures on

the various documents petitioner has filed with the Court, the

Court finds that only three of the signatures are petitioner’s.

“It is well settled that the mere receipt and possession of

money does not by itself constitute taxable income.” Liddy v.

Commissioner, T.C. Memo. 1985-107, affd. 808 F.2d 312 (4th Cir.

1986).

This Court stated in Diamond v. Commissioner, 56 T.C. 530,

541 (1971), affd. 492 F.2d 286 (7th Cir. 1974): “We accept as
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sound law the rule that a taxpayer need not treat as income

moneys which he did not receive under a claim of right, which

were not his to keep, and which he was required to transmit to

someone else as a mere conduit.” See also Ancira v.

Commissioner, 119 T.C. 135, 138 (2002).

Money received as a mere agent or conduit is not includable

in gross income. Liddy v. Commissioner, 808 F.2d at 314; Diamond

v. Commissioner, supra at 541; Heminway v. Commissioner, 44 T.C.

96, 101 (1965).

The Court finds credible the testimony of both petitioner

and Mr. Fullen that the compensation earned actually belongs to

Mr. Fullen. The Court holds the nonemployee compensation is not

attributable to petitioner and she is not liable for self-

employment tax.

In the Joint Motion for Continuance, respondent expressed

his intention to issue a notice of deficiency to Mr. Fullen for

the nonemployee compensation in issue. Mr. Fullen has already

provided respondent with his Social Security number and has

claimed full responsibility for the taxes owed on the

compensation. Mr. Fullen’s failure to file an individual income

tax return for 1998 does not impair respondent’s ability to issue

a notice of deficiency to him. The open period of limitations

serves as an aid in respondent’s pursuit of Mr. Fullen for this
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outstanding tax liability. See sec. 6501(c)(3). This is not a

“whipsaw” situation for respondent.

2. Petitioner’s Marital Status

Respondent alleges in the alternative, that petitioner was

Mr. Fullen’s common law wife and, as such, is liable for income

tax on one-half of Mr. Fullen’s income. Under such

circumstances, petitioner’s proper filing status would be married

filing separate instead of single. See sec. 1(d).

The three elements of a common law marriage in Texas are:

(1) The couple agreed to be married; (2) after the agreement,

they lived together as husband and wife; and, (3) they

represented to others that they are married. See Tex. Fam. Code

Ann. sec. 2.401(a) (Vernon 1998); Russell v. Russell, 865 S.W.2d

929, 932 (Tex. 1993). All three elements must coexist to

establish a valid common law marriage. Winfield v. Renfro, 821

S.W.2d 640, 645 (Tex. App. 1991).

While they did reside together during 1998, petitioner and

Mr. Fullen have never been married to each other. Petitioner

testified that she never gave anyone the impression she was

married to Mr. Fullen. The Court finds her testimony credible.

The Court holds petitioner was not married to Mr. Fullen during

1998. The Court holds further that petitioner’s correct filing

status for taxable year 1998 is single.
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In light of the Court’s holdings that the income in issue is

not attributable to petitioner, and petitioner was not Mr.

Fullen’s common law wife, the Court holds further that petitioner

is not liable for accuracy-related penalties under section

6662(a).

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

for petitioner.