T.C. Summary Opinion 2004-31
UNITED STATES TAX COURT
HARRY ALLEN AND EVELYN SCOTT HALL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13109-02S. Filed March 16, 2004.
Harry Allen Hall, pro se.
T. Keith Fogg, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 of the Internal Revenue Code in effect
at the time the petition was filed.1 The decision to be entered
is not reviewable by any other court, and this opinion should not
1
Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year at issue. Rule references are to the Tax Court Rules of
Practice and Procedure.
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be cited as authority.
Respondent determined a deficiency of $13,267 in
petitioners’ Federal income tax and an accuracy-related penalty
under section 6662(a) of $2,653, for the year 2000. After
concessions, the sole issue for decision is whether petitioners
had unreported gross income of $51,470 from a trade or business
activity in 2000.2
Some of the facts were stipulated. Those facts, with the
exhibits annexed thereto, are so found and are made part hereof.
Petitioners’ legal residence at the time the petition was filed
was Virginia Beach, Virginia.
Petitioners were married during the year at issue and filed
a timely joint income tax return. Harry Hall was a truck driver.
He conducted this occupation as a Schedule C, Profit or Loss From
Business, trade or business activity. Evelyn Hall worked in
maintenance and reported $15,968 in wage and salary income.
Mr. Hall operated a tractor-trailer. He owned the tractor
and leased the trailer from American Road Lines (ARL), a private
corporation with whom he had a contractual relationship during
the year at issue. ARL had contracts with the Federal
2
Petitioners conceded the sec. 72(t) tax due on an early
withdrawal from an Individual Retirement Account (IRA).
Respondent conceded the accuracy-related penalty and $10,983 in
additional allowable Schedule C expenses. Other adjustments are
computational in nature.
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Government. Under an agreement with ARL, Mr. Hall transported
Government freight across the United States as an independent
owner/operator.
ARL sent Mr. Hall weekly settlement statements. Each
statement consisted of a “permanent check voucher” and a
“settlement voucher,” which listed the income Mr. Hall had earned
on his trips for ARL, as well as any deductible charges he had
incurred during that week. The charges included rent due on the
trailer and other expenses advanced by ARL, such as truck tags
needed to cross into various States, taxes, and expenses with
respect to use of the leased trailer. Mr. Hall was obligated to
repay such expenses. Each item of income and expense was
enumerated. In the audit of their return by respondent,
petitioners provided roughly two-thirds of the weekly statements
for the year at issue. These statements were produced at trial.
Other statements were either misplaced or lost.
On the lower portion of each weekly settlement statement
were figures entitled, “YTD Amount” and “YTD 1099”. These
figures suggested a running total, as they tended to increase
with each later statement. However, some statements contained
the designation, “N/A,” in the “YTD Amount” or “YTD 1099" column.
The last statement for the year, dated December 21, 2000, showed
a “YTD Amount” of $54,197.69 and a “YTD 1099" of $43,983.72.
During the course of the year, Mr. Hall noticed that his
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statements had inaccuracies. Specifically, he did not understand
the instances when “N/A” appeared in the “YTD Amount” or “YTD
1099" column. Both he and Mrs. Hall attempted to contact ARL on
several occasions for explanations; however, they were
unsuccessful. Mr. Hall described these efforts to the Court:
During the course of the year, I had the pleasure to
call ARL constantly and question them about the figures on
the bottom of the settlement. The woman said okay, we’ll
try to get it straight. We’ll straighten it out.
* * * * * * *
I couldn’t make heads or tails just looking at their
paperwork that they * * * [were] giving me a true figure
because I had inquired to these people over and over that my
statements didn’t look right. The figures wouldn’t match.
I was asking them for help to figure out their own
paperwork, and the woman there told me that she would try to
figure it out. Don’t worry about it. It will be corrected.
Just keep on trucking. I was being honest with them, and I
was hoping that they were being honest with me.
* * * * * * *
When the figures did show up, I thought it was
corrected. I took it at face value that the figures were
correct.
Petitioners eventually lost faith in ARL. Mr. Hall left the
company in December 2000 to pursue more local trucking work with
a different company.
Petitioners filed their 2000 Federal income tax return
timely. On Schedule C, they reported $47,773 in gross receipts
or sales from Mr. Hall’s activity as a truck driver. This amount
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represented the $43,983.72 in the “YTD 1099" column on the
December 21, 2000, settlement statement from ARL, plus payments
received from two other companies, Gilco Properties and RB&B
Trucking.
On Form 1099-MISC, Miscellaneous Income, ARL reported the
amount it had paid to Mr. Hall in 2000 to the Internal Revenue
Service. The parties stipulated that the information return
issued by ARL reflected that ARL paid $95,455 to Mr. Hall during
the year in question.3 Petitioners did not receive the Form
1099-MISC from ARL. The Form 1099-MISC was not produced at
trial, but respondent’s explanation of adjustments refers to it,
indicating that a Form 1099 was received by respondent.
The issue for decision is whether, on their 2000 income tax
return, petitioners underreported gross trade or business income
of $51,470, the difference between the $95,455 on the Form 1099
filed by ARL and the $43,983.72 stated on the settlement
statement issued to Mr. Hall by ARL. Generally, the taxpayer has
the burden of proving that the determinations made by
Commissioner in the notice of deficiency are erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933). However,
section 6201(d) provides that, if the taxpayer, in a court
3
In later correspondence with respondent, ARL indicated
that the Form 1099 had understated the amount paid to Mr. Hall by
$1,349. However, respondent has not sought an increased
deficiency.
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proceeding, asserts a reasonable dispute with respect to income
reported on an information return and fully cooperates with the
Commissioner, the Commissioner has the burden of producing
reasonable and probative information in addition to the
information return. Hardy v. Commissioner, T.C. Memo. 1997-97,
affd. 181 F.3d 1002 (9th Cir. 1999). The Court is satisfied that
the requirements of section 6201(d) have been met, and the burden
of going forward is on respondent with respect to this additional
income.
The Court concludes that respondent has met the burden of
producing reasonable and probative information with respect to
the deficiency. In the audit of petitioners’ return,
respondent’s revenue agent, Elizabeth Isgett, obtained from ARL a
summary of the checks issued to Mr. Hall in 2000 (check summary).
The check summary was a complete record of ARL’s payments and
deductions with respect to Mr. Hall for the year at issue. It
contained a column labeled “1099 Amount”. Ms. Isgett determined
that the income and expense items on the check summary, when
combined, produced the net figure of $95,455 reported to the
Internal Revenue Service by ARL.4 This information was
4
Ms. Isgett compared the check summary with the
available weekly settlement statements and determined that the
“1099 YTD” total on the Dec. 21 settlement statement ($43,984.72)
did not represent the net effect of Mr. Hall’s income and
expenses as reflected in his check summaries. In fact, this
“1099 YTD” total did not correspond to any of the records she
(continued...)
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reasonable, probative, and supportive of the allegation of
additional income. Respondent satisfies the requirements of
section 6201(d).
Although respondent bore the burden of proof with respect to
the issue of unreported income, nonetheless, the ultimate burden
of persuasion, or risk of nonpersuasion, remains on petitioners.
Senter v. Commissioner, T.C. Memo. 1995-311 (citing Higginbotham
v. United States, 556 F.2d 1173, 1176 (4th Cir. 1977)).5 For the
following reasons, the Court holds that petitioners have not met
their ultimate burden of persuasion that they did not receive the
$51,470 in gross income at issue.
Gross income includes all income from whatever source
derived. Sec. 61(a). Despite the error in the running totals
columns, the available weekly statements do corroborate the
income and expense entries contained on the check summary. The
Court thus concludes that the check summary is reliable evidence
of ARL’s payments and deductions with respect to Mr. Hall.
4
(...continued)
reviewed. As the Court was also not able to determine the origin
of that figure, the Court disregards the significance of the
“1099 YTD” amount as reflected on the Dec. 21 settlement
statement.
5
Because any appeal in this case, if it were
permissible, would lie to the Court of Appeals for the Fourth
Circuit, the Court follows the precedent established in that
Circuit. Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970),
affd. 445 F.2d 985 (10th Cir. 1971).
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Moreover, the check summary covers the entire taxable year and
supports respondent’s contention that petitioners had income that
was not reported on their return. Petitioners have not contested
the accuracy of the check summary.
Section 6001 provides generally that every person liable for
any tax shall keep such records, render such statements, make
such returns, and otherwise comply with applicable rules and
regulations for the reporting of income and expenses. To be
sure, some of the monthly statements petitioners received from
ARL contained inaccuracies; however, petitioners knew that.
Petitioners failed to maintain their own books and records to
persuade the Court that the information return filed at yearend
with respondent by ARL was inaccurate. On this record, the Court
finds that petitioners did receive $51,470 in unreported income
during the year 2000. Respondent is sustained on this issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.