T.C. Summary Opinion 2006-169
UNITED STATES TAX COURT
THOMAS J. SWEENEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6331-05S. Filed October 19, 2006.
Thomas J. Sweeney, pro se.
Robert W. Dillard, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue.
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Respondent determined a deficiency of $1,681 in petitioner’s
Federal income tax for 2002.
The sole issue for decision is whether petitioner, under
section 1366, is required to include as income on his 2002
Federal income tax return his proportionate share of
undistributed income from an S corporation in which he was a
shareholder with his former wife.2
Some of the facts were stipulated. Those facts, with the
exhibits annexed thereto, are so found and made part hereof.
Petitioner’s legal residence was Seminole, Florida, at the time
the petition was filed.3
Petitioner was married to Cheryl L. Sweeney during the year
at issue. During the year 2000, petitioner and his wife
incorporated Lake Vista Billing Services, Inc. Petitioner was
the registered agent for the corporation; his wife was the
president, and petitioner was vice president and a stockholder.
The stated purpose for the corporation was “medical billing for
2
At trial, petitioner conceded the following adjustments in
the notice of deficiency: (1) Disallowance of a dependency
exemption deduction for a child; (2) disallowance of a child and
dependent care credit under sec. 21(a)(1); (3) disallowance of
the child tax credit under sec. 24; and (4) a computational
disallowance of miscellaneous itemized deductions.
3
Under sec. 7491(a), where a taxpayer introduces credible
evidence with respect to any factual issue relevant to
ascertaining the liability of the taxpayer, the burden of proof
shifts to the Commissioner. There are no factual issues in this
case. The sole issue is a question of law; consequently, this
case is decided without regard to the burden of proof.
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physicians’ practices”. Petitioner and his spouse each owned 50
percent of the corporation.
The activity of the corporation was simply collection of
fees charged by doctors to their patients for medical services.
Petitioner’s spouse performed all the activities of the
corporation by visiting doctors’ offices weekly, picking up their
billing invoices, collecting payment of these invoices from
primary and secondary insurers, and collecting directly from each
patient the portions not covered by insurance. Petitioner was
not involved in this activity. Petitioner was employed as an
insurance instructor for an unrelated employer.
There is no evidence in the record as to the corporation’s
business activity for the years 2000 and 2001. However, for the
year 2002 (the year at issue in this case), a Form 1120S, U.S.
Income Tax Return for an S Corporation, was filed. On that
return, the corporation’s taxable income was $18,627. The return
reflected issuance to the shareholders of the corporation
Schedules K-1, Shareholder’s Share of Income, Credits,
Deductions, etc. Although a copy of the Schedule K-1 issued to
petitioner was not offered into evidence at trial, respondent’s
official records were offered into evidence, which reflected a
Schedule K-1 for petitioner in the amount of $9,314, which is
one-half of the corporation’s net income of $18,627, rounded. On
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his Federal income tax return for 2002, petitioner did not
include any income from the corporation.
Petitioner and his spouse each filed Federal income tax
returns for 2002 as married filing separately. Respondent’s
records reflect that petitioner’s spouse reported on her return
$9,314, or one-half of the taxable income of the S corporation.
In the notice of deficiency, respondent determined a deficiency
against petitioner for the unreported $9,314 in flow-through
income from Lake Vista Billing Services, Inc.
Petitioner contends he never received any of the proceeds of
the corporation’s profitable activity for the year at issue. He
and his wife had serious problems between them during the year,
which he described at trial as follows:
This is my whole argument, Your Honor. During the second
week of January 2002, my wife proceeded to throw me out of
my home, which is where the business was located. She
changed the locks. She stripped our corporate bank
accounts, our personal bank accounts, charged up all the
cash she could on my credit cards to over $50,000, $60,000,
and she physically, lock, stock, and barrel, locked me out
of the corporation.
Although petitioner engaged the services of an attorney in
connection with his marital problems, no evidence was offered to
show what was resolved between petitioner and his wife regarding
the corporation. The notice of deficiency was ultimately issued
to petitioner in which a deficiency was determined based on the
inclusion in income of petitioner’s share of the S corporation’s
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income for the year 2002, pursuant to the information return
filed by the corporation for that year.
Section 1362(a) allows a small business corporation to elect
to be governed by the provisions of subchapter S for its taxable
years. Such an election allows the income, expenses, and credits
of the corporation to flow through to the corporation’s
shareholders. Sec. 1366(a). As required by section 1362(a), the
election must be made by all shareholders, and the election is
effective and continues for all succeeding taxable years unless
terminated under section 1362(d). Such an election was made in
this case, and there was no termination of that election as to
the year at issue.
Petitioner did not include on his 2002 Federal income tax
return his distributive share of the taxable income reported by
the corporation as an S corporation for that year. Although it
is obvious to the Court that petitioner and his spouse had
serious differences between them, this Court is not the proper
forum for the resolution of these differences. All formalities
of the Internal Revenue Code were followed with respect to the S
corporation for the year 2002, and the distributive share of that
income to petitioner constitutes taxable income to him. The
Court, therefore, sustains respondent.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.