T.C. Memo. 2005-292
UNITED STATES TAX COURT
JAMES B. CLARK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9559-04. Filed December 21, 2005.
James B. Clark, pro se.
Inga C. Plucinski and Marion K. Mortensen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined deficiencies in
petitioner’s Federal income tax, an addition to tax, and
penalties as follows:
Addition to tax and penalties
Year Deficiency sec. 6651(a)(1) sec. 6662(a)
1998 $7,494 $776.75 $1,498.80
2000 14,163 -- 2,832.60
2001 5,754 -- 1,150.80
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The issues for decision1 are:
1. Whether petitioner had gross income and deductions in
the amounts respondent determined for 1998, 2000, and 2001. We
hold he did.
2. Whether petitioner is liable for the addition to tax
for failure to timely file under section 6651(a)(1)2 for 1998,
and for the accuracy-related penalty under section 6662(a) for
1998, 2000, and 2001. We hold that he is.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
1
We ordered the parties to file posttrial briefs.
Respondent did so; petitioner did not. Under these
circumstances, we may hold petitioner in default on all issues
for which he bears the burden of proof. See Stringer v.
Commissioner, 84 T.C. 693, 704-708 (1985), affd. without
published opinion 789 F.2d 917 (4th Cir. 1986); Furniss v.
Commissioner, T.C. Memo. 2001-137; McGee v. Commissioner, T.C.
Memo. 2000-308. However, we decide this case on the record as it
stands. We base our understanding of petitioner’s position on
his petition and trial testimony.
2
Section references are to the Internal Revenue Code as
amended and in effect for the years in issue.
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A. Petitioner
Petitioner resided in Salt Lake City, Utah, when the
petition was filed. He was married to Brenda J. Clark (Mrs.
Clark) during the years in issue.
Petitioner studied finance at Idaho State University. He
has a degree in accounting from Brigham Young University. Over
the years, petitioner has worked as a distribution clerk, truck
driver, stockbroker, and restaurant owner and as sole proprietor
of a business known as Totally Awesome Internet (TAI).
Petitioner and his family formerly lived in Idaho.
Petitioner moved to Salt Lake City in June 1997 to work for Boise
Cascade Office Products, but he did not work for that company
after November 25, 1997. His family moved to Salt Lake City in
1998. Petitioner worked intermittently for Dell Super Computers
during the years in issue.
B. Petitioner’s Tax Returns
Petitioner and Mrs. Clark filed a joint Form 1040, U.S.
Individual Income Tax Return, for 1998, which respondent received
on November 19, 2000. On that return, they reported $56,991 of
gross income, $3,820 of taxable income, $2,022 tax due, and
$6,409 tax withheld, and they claimed a $4,387 refund. They
deducted $35,304 for moving expenses and $9,767 for itemized
deductions. Petitioner kept few if any records. About $20,000
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of the amount he deducted for moving expenses was the cost of
replacing the roof on his house in Idaho.
In May 1999, petitioner organized a corporation named
Totally Awesome Internet Services, Inc. (TAIS, Inc.). TAIS,
Inc., was dissolved in April 2000. After dissolution, petitioner
continued to operate the business as a sole proprietorship.
Petitioner prepared and he and Mrs. Clark timely filed a
joint income tax return for 2000. They reported $16,417 of
income, $13 tax due, and $2,616 tax withheld, and they claimed a
$2,603 refund. On a Schedule C, Profit or Loss from Business,
included with that return, they reported $1,682 in gross receipts
and sales for TAI and deducted $12,289 in business expenses.
Jackson Hewitt Tax Service prepared and electronically
filed a joint income tax return for 2001 for petitioner and Mrs.
Clark. On that return, they reported $42,878 of income, $36,781
of itemized deductions, $28 tax due, and $4,551 tax withheld, and
they claimed a $4,523 refund. They deducted $22,131 of
unreimbursed employee expenses petitioner allegedly incurred in
2001.
C. Respondent’s Examination of Petitioner’s Tax Returns for
1998, 2000, and 2001
Respondent selected petitioner and Mrs. Clark’s 1998 Federal
income tax return for examination on August 17, 2001. Petitioner
and Mrs. Clark executed a Consent to Extend the Time to Assess
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Tax for 1998. Respondent later expanded the audit to include
their 2000 and 2001 joint returns.
During 1998, 2000, and 2001, petitioner and Mrs. Clark
maintained a joint checking account with the Veterans’
Administration Medical Center University Federal Credit Union
(VAMCU). Respondent’s tax examiner (the examiner) reviewed
petitioner and Mrs. Clark’s bank statements, including monthly
statements for the VAMCU joint checking account, and conducted a
bank deposits analysis. The examiner concluded, on the basis of
the bank deposits analysis, that petitioner and Mrs. Clark failed
to report taxable income of $9,131 for 1998 and $11,167 for 2001.
The examiner also concluded that petitioner failed to report
$37,175 in gross receipts and sales on Schedule C for 2000.
The examiner asked petitioner to substantiate the moving
expenses that he and Mrs. Clark had deducted on their 1998 tax
return. In response, petitioner gave to the examiner (1) two
checks purportedly payable to Dave’s Moving and Storage, and (2)
a summary of moving expenses purportedly from Dave’s Moving and
Storage. Petitioner fabricated these items. Dave’s Moving and
Storage did not exist. The examiner adjusted petitioner and Mrs.
Clark’s itemized deductions for 1998.
The examiner asked petitioner to substantiate the Schedule C
business expenses that he and Mrs. Clark deducted on their 2000
tax return and the unreimbursed employee business expenses that
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they deducted on their 2001 return. Petitioner did not
substantiate any of those deductions. Some of the amount
petitioner deducted as unreimbursed employee expenses was job
hunting expenses. The examiner did not attribute any income to
them on the basis of deposits in the account of TAIS, Inc.
OPINION
A. Whether Petitioner Had Gross Income in the Amounts
Respondent Determined for 1998, 2000, and 2001
Petitioner contends that respondent overstated the amounts
of petitioner’s unreported gross income for 1998, 2000, and 2001.
We disagree.
If a taxpayer does not maintain adequate books and records,
the Commissioner may reconstruct the taxpayer’s income by any
reasonable method which clearly reflects income, sec. 446(b);
Holland v. United States, 348 U.S. 121, 130-132 (1954), including
the bank deposits method, Parks v. Commissioner, 94 T.C. 654, 658
(1990); Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975),
affd. 566 F.2d 2 (6th Cir. 1977). Bank deposits are prima facie
evidence of income. Tokarski v. Commissioner, 87 T.C. 74, 77
(1986); Estate of Mason v. Commissioner, supra at 656-657.
Petitioner did not keep adequate books and records for the years
in issue. The examiner used the bank deposits method to estimate
petitioner’s gross income for those years.
Petitioner contends that the examiner incorrectly counted
his transfers of funds from one account to another in 1998, 2000,
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and 2001 as income. We disagree. The examiner testified and her
bank deposits worksheet shows that she did not count funds
transferred from one account to another as income to petitioner
for 1998, 2000, and 2001.
Petitioner contends that the examiner improperly treated
overdraft transfers as taxable receipts. We disagree. The
examiner testified and her bank deposits worksheet shows that she
recorded overdraft transfers first as receipts, and then as
transfers from receipts, and so she did not treat overdraft
transfers as taxable receipts.
Petitioner made no other arguments relating to respondent’s
determination of his and Mrs. Clark’s gross income. We sustain
respondent’s determination of petitioner’s gross income for 1998,
2000, and 2001.
B. Whether Petitioner Had More Deductions Than Respondent
Allowed for 1998, 2000, and 2001
Petitioner contends that he had more deductions than
respondent allowed for 1998, 2000, and 2001. Specifically,
petitioner contends that he had substantial amounts of moving
expenses in 1998, business expenses in 2000, and unreimbursed
employee expenses in 2001.
1. Moving Expenses
Generally, a taxpayer may deduct moving expenses paid or
incurred during a taxable year in connection with beginning
qualifying work at a new qualifying location. Sec. 217(a). A
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taxpayer may deduct as moving expenses only the cost of
transporting household goods and personal effects and travel,
including lodging but not meals, from the former residence to the
new residence. Sec. 217(b). Petitioner bears the burden of
proving he may deduct moving expenses.3 Petitioner did not
substantiate any of the claimed moving expenses. Petitioner
testified that about $20,000 of the $34,304 that he deducted as
moving expenses is the amount he spent to replace the roof on his
Idaho home. That expense is not deductible under section 217(b).
2. Business Expenses
a. Telephone Expenses
Petitioner contends that he had about $11,000 in telephone
expenses for TAI in 2000. He testified that telephone expenses
of about $11,000 were eventually paid. Petitioner offered no
telephone bills showing amounts owed or bank records to show that
he paid any telephone bills in 2000 or at any time. We conclude
that petitioner may not deduct any amount as a telephone business
expense for 2000.
b. Internet Uplink Services Expense
Petitioner testified that he paid about $47,000 to an entity
known as Viawest for Internet uplink services, and he contends
that he may deduct that amount for 2000. We disagree.
3
Petitioner does not contend (nor does the record support
a conclusion) that the burden of proof is shifted to respondent
under sec. 7491(a).
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Petitioner prepared and gave the examiner a summary of Viawest
expenses for TAIS, Inc. Petitioner had no invoices or copies of
canceled checks showing that he incurred or paid those amounts.
Petitioner offered in evidence a summary of payments TAIS,
Inc., made to Viawest and a set of Viawest invoices.
Respondent’s counsel and the examiner could not reconcile the
summary of payments TAIS, Inc., made to Viawest with respondent’s
bank deposits analysis, and petitioner could not explain the
discrepancy. Petitioner did not offer into evidence or make
available to respondent’s counsel all of the documents on which
the summary of payments was purportedly based. See Fed. R. Evid.
803(6), 1006. Petitioner gave respondent copies of Viawest
invoices for the first time at trial. Respondent asked for bank
records to show that petitioner paid the amounts stated in those
invoices. The Court gave petitioner 45 days following trial to
provide respondent with bank records to corroborate the summary
of payments and the Viawest invoices described above. Petitioner
did not do so.4 We conclude that petitioner may not deduct any
amount for Internet uplink services expense in 2000.
c. Conclusion
We conclude that petitioner has not proven that he is
entitled to deduct any business expenses for 2000.
4
By order, the summary of payments and the Viawest
invoices described above were not admitted in evidence.
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3. Unreimbursed Business Expenses
Petitioner contends that he had $21,355 in unreimbursed
employee expenses in 2001. We disagree. Petitioner did not
offer any persuasive evidence showing that he may deduct any of
these amounts. There is no evidence that petitioner paid any
amounts for unreimbursed employee business expenses in 2001.
We conclude that petitioner may not deduct any amount for
unreimbursed employee business expenses in 2001, and we sustain
respondent’s determination of petitioner’s deficiencies for 1998,
2000, and 2001.
C. Whether Petitioner Is Liable for the Addition to Tax for
Failure To Timely File Under Section 6651(a)(1) for 1998,
and for the Accuracy-Related Penalty Under Section 6662(a)
for 1998, 1999, and 2000
Section 7491(c) places on the Commissioner the burden of
producing evidence that it is appropriate to impose a particular
addition to tax or penalty. To meet that burden, the
Commissioner 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,
at 241 (1998), 1998-3 C.B. 747, 995.
Respondent has met the burden of production with respect to
the addition to tax for failure to timely file a return for 1998
by showing that petitioner and Mrs. Clark filed a joint 1998
return on November 19, 2000. Respondent has met the burden of
production with respect to the accuracy-related penalty under
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section 6662(a) by showing that petitioner has no records and
submitted false documents to the examiner.
Petitioner made no argument that he was not liable for the
addition to tax for failure to file under section 6651(a)(1) for
1998, or for the accuracy-related penalty under section 6662(a)
for 1998, 2000, and 2001. We conclude that petitioner is liable
for the addition to tax for failure to file under section
6651(a)(1) for 1998, and for the accuracy-related penalty under
section 6662(a) for 1998, 2000, and 2001.
To reflect the foregoing,
Decision will be
entered for respondent.