T.C. Memo. 2005-145
UNITED STATES TAX COURT
DALE J. KROHN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7412-04. Filed June 20, 2005.
Dale J. Krohn, pro se.
Chris J. Sheldon, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined a deficiency in
petitioner’s Federal income tax of $4,695 for 2001 and additions
to tax of $1,056.38 for failure to file under section 6651(a)(1),
$422.55 for failure to pay under section 6651(a)(2), and $185.80
for failure to pay estimated tax under section 6654. In the
answer, respondent conceded that petitioner is not liable for the
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addition to tax under section 6651(a)(2) for 2001. Respondent
now contends that the correct amount of the addition to tax under
section 6651(a)(1) for 2001 is $1,173.75.
The issues for decision are:
1. Whether petitioner is liable for a $4,695 deficiency in
Federal income tax for 2001. We hold that he is.
2. Whether petitioner is liable for the addition to tax for
failure to file under section 6651(a)(1) of $1,173.75 for 2001.
We hold that he is.
3. Whether petitioner is liable for the addition to tax for
failure to pay estimated tax under section 6654(a) of $185.79 for
2001. We hold that he is.
FINDINGS OF FACT
Petitioner resided in Arizona when he filed his petition.
In 2001, petitioner received Social Security benefits in the
amounts of $13,572, and compensation in the amounts of $10,269
from Paul Development, Inc., $1,962 from Wendell Builders, Inc.,
and $1,222 from Walker Custom Homes, Inc. None of these payors
withheld Federal income tax for petitioner in 2001.
Petitioner did not file a Federal income tax return for
2001. He did not make estimated tax payments for 2001.
Respondent determined that petitioner received taxable
income based on documents provided by third-party payors and sent
a notice of deficiency to petitioner. Petitioner timely filed a
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petition with this Court. Petitioner did not cooperate with
respondent in preparing for trial.
Before trial, petitioner asserted that he had a right not to
testify because to do so would have required him to waive his
Fifth Amendment privilege against self-incrimination. Petitioner
did not identify or exchange any documents, identify witnesses,
or file a pretrial memorandum as required by the standing
pretrial order. Respondent complied with these requirements.
OPINION
A. Burdens of Production and Proof
1. Burden of Production
a. Section 6201(d)
If a taxpayer asserts a reasonable dispute with respect to
any item of income reported on a third-party information return
and the taxpayer has fully cooperated with the Secretary, the
Secretary has the burden of producing reasonable and probative
information concerning that deficiency in addition to the
information return. Sec. 6201(d).
Petitioner did not introduce any evidence to refute
respondent’s evidence or show that respondent’s determination of
petitioner’s income is in error. We conclude that respondent
does not have the burden of production under section 6201(d)
because petitioner did not assert a reasonable dispute with
respect to any item of income reported on an information return
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and petitioner has not fully cooperated with respondent. Even if
respondent had the burden of proceeding under section 6201(d),
respondent met that burden by producing information returns with
certified transcripts from respondent’s administrative files and
from Social Security Administration files and declarations and
supporting records from Robert Curtis Pankow, president of
Wendell Builders, Inc., Craig Douglas Walker, president of Walker
Custom Homes, Inc., and Paul Brian Walker, president of Paul
Development, Inc. The declarations were made under penalties of
perjury and are governed by 28 U.S.C. section 1746 (2000). The
declarations at issue are in the form required by 28 U.S.C.
section 1746 (2000).
The declarations are admissible under rules 803(6) and
902(11) of the Federal Rules of Evidence. Rule 803(6) of the
Federal Rules of Evidence provides an exception to the hearsay
rule for records that are kept in the course of a regularly
conducted activity and made at or near the time of the event by a
person with knowledge. Rule 902(11) of the Federal Rules of
Evidence states the requirements for self-authentication of a
business record. To qualify under Rule 902(11), a domestic
record of a regularly conducted business activity must be
accompanied by a declaration certifying that the record (1) was
made at or near the time of the occurrence of the matters set
forth by, or from information transmitted by, a person with
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knowledge of those matters; (2) was kept in the course of the
regularly conducted activity; and (3) was made by the regularly
conducted activity as a regular practice. All of the underlying
documents were kept in the regular course of business, and the
related declarations of the validity of these documents were made
by people familiar with them.
We conclude that section 6201(d) does not apply in this
case.
b. Determination in Unreported Income Cases
The U.S. Court of Appeals for the Ninth Circuit (to which an
appeal of this case would lie) has held that in order for the
presumption of correctness to attach to the notice of deficiency
in unreported income cases, the Commissioner must establish “some
evidentiary foundation linking the taxpayer” to the income-
producing activity, Weimerskirch v. Commissioner, 596 F.2d 358,
361-362 (9th Cir. 1979), revg. 67 T.C. 672 (1977), or some
substantive evidence “demonstrating that the taxpayer received
unreported income”, Edwards v. Commissioner, 680 F.2d 1268, 1270
(9th Cir. 1982); see also Rapp v. Commissioner, 774 F.2d 932, 935
(9th Cir. 1985). Once there is evidence of actual receipt of
funds by the taxpayer, the taxpayer has the burden of proving
that all or part of those funds is not taxable. Tokarski v.
Commissioner, 87 T.C. 74, 76-77 (1986).
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There is ample evidence linking petitioner to income-
producing activities. He received nonemployee compensation from
Wendell Builders, Inc., Walker Custom Homes, and Paul
Development, Inc., and Social Security benefits. At trial,
respondent submitted Forms 1099-MISC, Miscellaneous Income, a
certified transcript from the Social Security Administration,
nonemployee compensation payor records, and declarations under
penalties of perjury of those payors as to the validity of these
underlying documents. The transcripts, declarations, and
supporting documents show that petitioner received income during
the years in issue. Thus, petitioner bears the burden of proving
respondent’s determinations are in error. See Edwards v.
Commissioner, supra; Weimerskirch v. Commissioner, supra.
2. Burden of Proof
Respondent bears the burden of proving the increased
addition to tax raised in the pleadings. See Rule 142(a). This
increase is computational.
Petitioner contends that respondent generally bears the
burden of proof. We disagree. The burden of proof for a factual
issue relating to liability for tax may shift to the Commissioner
under certain circumstances. Sec. 7491(a). Under section
7491(a), the burden of proof with respect to a factual issue
relevant to a taxpayer’s liability for tax shifts from the
taxpayer to the Commissioner if, inter alia, the taxpayer has:
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(a) Complied with substantiation requirements under the Internal
Revenue Code, sec. 7491(a)(2)(A); (b) maintained all records
required by the Internal Revenue Code, sec. 7491(a)(2)(B); and
(c) cooperated with reasonable requests by the Secretary for
information, documents, and meetings, id. A taxpayer bears the
burden of proving that he or she has met the requirements of
section 7491(a). See H. Conf. Rept. 105-599, at 239 (1998),
1998-3 C.B. 747, 993; S. Rept. 105-174, at 45 (1998), 1998-3 C.B.
537, 581. Petitioner does not contend that he meets the
requirements of section 7491(a), and the record shows that he did
not meet those requirements because he did not cooperate with
respondent. Thus, petitioner bears the burden of proof except as
to the increased addition to tax. See Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
3. Whether Petitioner’s Fifth Amendment Claims Affect the
Burden of Proof
Before trial, petitioner asserted Fifth Amendment rights
against self-incrimination. However, even if petitioner’s claim
was bona fide (which we need not decide), it would have no effect
on petitioner’s burden of proof. See United States v. Rylander,
460 U.S. 752, 758 (1983); Petzoldt v. Commissioner, 92 T.C. 661,
684-685 (1989); Traficant v. Commissioner, 89 T.C. 501, 504
(1987), affd. 884 F.2d 258 (6th Cir. 1989).
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B. Petitioner’s Income in 2001
Petitioner has not shown that respondent’s determination
relating to the amount of his income for 2001 is incorrect.
We conclude that petitioner received income as described in the
findings of fact.
C. Petitioner’s Deductions
A taxpayer must keep records that are sufficient to enable
the Commissioner to determine his or her tax liability. Sec.
6001; sec. 1.6001-1(a), Income Tax Regs. Deductions are a matter
of legislative grace. INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992). A taxpayer must substantiate the payments which
give rise to claimed deductions. Hradesky v. Commissioner, 65
T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.
1976); see sec. 6001.
Petitioner alleged in the petition that he is entitled to
claim deductions. However, petitioner has not identified the
items that he contends are deductible or offered any evidence
supporting his claim. Thus, he may not deduct any amount for
2001. We conclude that petitioner’s deficiency in income tax for
2001 was $4,695.
D. Additions to Tax
Section 7491(c) places on the Commissioner the burden of
producing evidence that it is appropriate to impose additions to
tax. To meet the burden of production under section 7491(c), the
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Commissioner must produce evidence showing that it is appropriate
to impose the particular addition to tax but need not produce
evidence relating to defenses such as reasonable cause or
substantial authority. Higbee v. Commissioner, 116 T.C. 438, 446
(2001); H. Conf. Rept. 105-599, supra at 241, 1998-3 C.B. at 995.
Petitioner is required to file a return for 2001 but has not
done so. He did not make estimated tax payments with respect to
his tax liability for 2001. Thus, respondent has met the burden
of production.
Respondent conceded that petitioner is not liable for the
addition to tax under section 6651(a)(2) for 2001. Thus, section
6651(c)(1) (reducing the amount imposed by section 6651(a)(1) to
4.5 percent for any month in which both section 6651(a)(1) and
(2) additions are imposed) does not apply and the 5-percent rate
does. Respondent has established that petitioner is liable for
the addition to tax under section 6651(a)(1) for 2001 in an
amount greater than respondent determined in the notice of
deficiency. We conclude that petitioner is liable for additions
to tax for failure to file under section 6651(a)(1) of $1,173.75
and failure to pay estimated tax under section 6654 of $185.79
for 2001.
To reflect the foregoing,
Decision will be
entered for respondent.