T.C. Memo. 2007-1
UNITED STATES TAX COURT
RICHARD CLARKE RANDALL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24208-05. Filed January 3, 2007.
Richard Clarke Randall, pro se.
Steven I. Josephy, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: Petitioner petitioned the Court to redetermine
a $14,643 deficiency in his 2003 Federal income tax and a $2,929
accuracy-related penalty under section 6662(a).1 Following a
trial that was held on September 11, 2006, we must decide whether
1
Section references are to the applicable versions of the
Internal Revenue Code.
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petitioner’s 2003 taxable income includes nonemployee
compensation not otherwise reported by him in that taxable
income. We hold that it does. We also must decide whether
petitioner is liable for the section 6662(a) accuracy-related
penalty. We hold that he is.
FINDINGS OF FACT
Some facts are stipulated and are so found. The stipulation
of facts and the accompanying exhibits are incorporated herein by
this reference. Petitioner resided in Colorado when his petition
was filed.
In 2003, petitioner received $32,225 in nonemployee
compensation from National Quality Assurance USA Inc., $20,517 in
nonemployee compensation from Labtest International Inc., $2,250
in nonemployee compensation from Due.com Inc., $44 in interest
income from Firstbank of Arapahoe County, and $242 in taxable
dividends from The Southern Company Services, Inc. After
receiving petitioner’s 2003 Form 1040EZ, Income Tax Return for
Single and Joint Filers With No Dependents, respondent issued to
petitioner a notice of proposed changes (CP-2000). Thereafter,
petitioner filed a Form 1040X, Amended U.S. Individual Income Tax
Return, for 2003. On this amended return, petitioner reported
that his adjusted gross income for 2003 was $501; this amount
consisted of $44 of interest income and $215 and $242 in
dividends. He reported total tax of zero. Petitioner attached
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to this amended return 2003 Forms 1099-MISC, Miscellaneous
Income, from National Quality Assurance USA, Inc. and Labtest
International, Inc.; on each, petitioner had crossed out the
amounts listed in the box labeled “nonemployee compensation” and
written in “0”. He included at the bottom of each of the Forms
1099-MISC the following statement:
This corrected Form 1099-MISC is submitted to rebut a
document known to have been submitted by the party
identified above as “PAYER” which erroneously alleges a
payment to the party identified above as the
“RECIPIENT” OF “gains, profit or income” made in the
course of a “trade or business”. Under penalties of
perjury, I declare that I have examined this statement
and to the best of my knowledge and belief, it is true,
correct, and complete.
Respondent issued to petitioner the notice of deficiency on
September 26, 2005, and petitioner timely filed a petition in
this Court. In the petition, petitioner stated the following:
I have submitted an amended tax return (1040X) to the
IRS addressing errors in my previous tax return
(1040EZ). I have also submitted an affidavit
explaining how two “1099-MISC” forms (identified in the
“Notice CP2000”) are incorrect. One was from “National
Quality Assurance USA Inc” and the other from “Labtest
International Inc.” Both “1099-MISC” forms erroneously
allege a payment to the party identified as he [sic]
“RECIPIENT” of “gains, profit or income” made in the
course of a “trade or business”. I rebutted both of
these documents in attachments to my amended 2003 tax
return, dated September 9, 2005. My amended tax return
did not indicate any greater tax liability than my
original tax return.
In the referenced affidavit, which was dated November 26, 2005,
petitioner stated that the Forms 1099-MISC from National Quality
Assurance USA Inc. and Labtest International Inc. “erroneously
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allege a payment to the party identified as the ‘RECIPIENT’ of
‘gains, profit or income’ made in the course of a ‘trade or
business’” and that he had “rebutted both of these documents in
attachments” to his amended 2003 return.
OPINION
Section 61 provides that “gross income means all income
from whatever source derived.” Gross income is an inclusive term
with broad scope, designed by Congress to “exert * * * ‘the full
measure of its taxing power’”. Commissioner v. Glenshaw Glass
Co., 348 U.S. 426, 429 (1955) (quoting Helvering v. Clifford, 309
U.S. 331, 334 (1940)). Compensation for services is enumerated
among the items of income included under section 61. Sec.
61(a)(1).
Petitioner agrees that he has in fact received the amounts
reportedly paid to him; he simply argues that the amounts are not
taxable. Petitioner’s argument is clearly without merit, and we
hold that the amounts of nonemployee compensation received by
petitioner are includible in his taxable income for 2003.
Respondent also determined that petitioner is liable for an
accuracy-related penalty under section 6662(a). In relevant
part, section 6662(a) and (b) imposes an accuracy-related penalty
if any portion of an underpayment is attributable to either (1)
negligence or disregard of rules or regulations or (2) any
substantial understatement of income tax. “Negligence” includes
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any failure to make a reasonable attempt to comply with the
provisions of the Internal Revenue Code. An “understatement” is
the excess of the amount of tax required to be shown on the
return for the taxable year over the amount of tax imposed which
is shown on the return, reduced by any rebate. Sec. 6662(d)(2).
A substantial understatement of income tax exists for any taxable
year for purposes of section 6662 if the amount of the
understatement for the taxable year exceeds the greater of 10
percent of the tax required to be shown on the return for the
taxable year or $5,000. Sec. 6662(d)(1)(A).
Respondent bears the burden of production under section
7491(c) and must come forward with sufficient evidence indicating
that it is appropriate to impose an accuracy-related penalty.
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). Once
respondent has met this burden, the taxpayer must come forward
with persuasive evidence that the accuracy-related penalty does
not apply. Id. at 447. The taxpayer may establish, for example,
that part or all of the accuracy-related penalty is inapplicable
because it is attributable to an understatement with respect to
which the taxpayer acted with reasonable cause and in good faith.
Sec. 6664(c)(1). Whether a taxpayer acted as such is a factual
determination, sec. 1.6664-4(b)(1), Income Tax Regs., in regard
to which the taxpayer’s effort to assess the proper tax liability
is a very important consideration.
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Here, we conclude that respondent has met his burden of
production with respect to the accuracy-related penalty.
Petitioner’s amended return for 2003 shows total tax due of zero.
Thus, the deficiency in this case, which is greater than $5,000,
is a substantial understatement within the meaning of section
6662(d). In addition, the deficiency in this case is
attributable to negligence as defined in section 6662(c), as
petitioner has failed to make any reasonable attempt to comply
with the provisions of the Internal Revenue Code. In that
petitioner has introduced no evidence to support a finding of
reasonable cause, we sustain respondent’s determination as to the
accuracy-related penalty.
To reflect the foregoing,
Decision will be entered
for respondent.