T.C. Memo. 2007-10
UNITED STATES TAX COURT
RAYMOND A. HEERS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22338-03. Filed January 16, 2007.
George E. Harp, for petitioner.
William F. Castor, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: Respondent determined a deficiency in
petitioner’s Federal income tax of $86,858 and additions to tax
under sections 6651(a)(1)1 and 6654 of $11,616.75 and $3,085.41,
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the taxable year in issue,
and Rule references are to the Tax Court Rules of Practice and
(continued...)
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respectively, for 2000. Respondent also determined that
petitioner was liable for an addition to tax under section
6651(a)(2) in an amount to be determined. Petitioner seeks a
redetermination of the deficiency and additions to tax. After
concessions,2 the issues for decision are:
(1) Whether petitioner received unreported income in the
form of nonemployee compensation and an early individual
retirement account (IRA) distribution;
(2) whether petitioner is liable for an addition to tax
under section 6651(a)(1) for failing to file his 2000 tax return;
and
1
(...continued)
Procedure.
2
Respondent concedes that petitioner is not liable for the
addition to tax under sec. 6651(a)(2) and is liable for an
addition to tax under sec. 6654 in the reduced amount of
$2,538.56. Petitioner concedes that he received unreported wage
income of approximately $23,000 and that he did not file a
Federal income tax return for 2000.
Petitioner argued in his petition that the notice of
deficiency did not sufficiently describe the basis of the tax
deficiency as required by sec. 7522. However, he did not raise
this argument on brief, and, therefore, we deem it conceded. See
Rule 151(e)(4) and (5); Petzoldt v. Commissioner, 92 T.C. 661,
683 (1989). Petitioner also argued in his petition that he is
not liable for self-employment tax because he did not receive
self-employment income and that he is not liable for the
additional tax under sec. 72(t) on the early withdrawal of an
individual retirement account (IRA) distribution because he did
not have an IRA account nor did he receive an IRA distribution.
Because petitioner similarly failed to raise these issues on
brief, we also deem them conceded to the extent we decide
petitioner had unreported income in the form of nonemployee
compensation and an early IRA distribution during 2000. See Rule
151(e)(4) and (5); Petzoldt v. Commissioner, supra at 683.
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(3) whether petitioner is liable for an addition to tax
under section 6654 for failing to make estimated payments with
respect to his 2000 tax liability.
FINDINGS OF FACT
Petitioner resided in Longwood, Florida, when his petition
in this case was filed.
During 2000, petitioner, a certified registered nurse
anesthetist, contracted with and provided services as an
independent contractor for Nationwide Anesthesia Services, Inc.
(Nationwide). Petitioner submitted invoices for his services,
which showed the date and hours worked as well as related
expenses and the total amount due to him under his contract with
Nationwide. During 2000, petitioner also worked as an employee
for Wellmont Health System for which he was paid wages totaling
$23,012.95, and he requested and received an early withdrawal of
$50,000 from an employer-sponsored retirement account at the
Variable Annuity Life Insurance Company (VALIC) from which
Federal income tax of $10,000 was withheld.
Petitioner did not file a Federal income tax return or make
any estimated tax payments for 2000. On September 26, 2003,
respondent issued a notice of deficiency for 2000 determining
that petitioner received wage income of $23,012, nonemployee
compensation of $171,069, and an early IRA distribution of
$50,000. In the notice of deficiency, respondent also determined
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that petitioner was liable for self-employment tax on the
nonemployee compensation, was liable for additional tax under
section 72(t) on the early IRA distribution, and was entitled to
a self-employment tax deduction. Respondent also determined that
petitioner was liable for additions to tax under sections
6651(a)(1) and (2) and 6654.
On December 24, 2003, petitioner’s imperfect petition was
filed. By order dated January 5, 2004, we ordered petitioner to
file a proper amended petition and pay the filing fee on or
before February 19, 2004. No response to the Court’s order was
received, and on April 26, 2004, we dismissed petitioner’s case
for lack of jurisdiction.
On July 29, 2004, we received and filed petitioner’s motion
for leave to file a motion to vacate the dismissal order out of
time and lodged his motion to vacate the order of dismissal.3 We
also received petitioner’s motion for leave to file an amended
petition out of time and petitioner’s amended petition. By order
dated August 16, 2004, we granted petitioner’s motion for leave
to file the motion to vacate, directed that the motion to vacate
be filed on that date, granted the motion to vacate, and vacated
our April 26, 2004, order of dismissal. In the August 16, 2004,
3
Petitioner’s motion for leave to file a motion to vacate
the dismissal order was mailed to the Court in an envelope
bearing a postmark of July 26, 2004, and was therefore timely
filed. See Stewart v. Commissioner, 127 T.C. 109, 116-117
(2006).
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order, we also granted petitioner’s motion for leave to file an
amended petition out of time, and we directed that petitioner’s
amended petition be filed as of August 16, 2004.
A notice setting case for trial during the Court’s Oklahoma
City, Oklahoma, trial session beginning March 6, 2006, was served
on petitioner on October 4, 2005. On March 6, 2006, we called
petitioner’s case to determine the status of the case and to set a
trial date. Neither petitioner nor a representative appeared. We
scheduled trial in petitioner’s case for March 7, 2006.
When petitioner’s case was called for trial on March 7,
2006, petitioner’s attorney appeared, but petitioner did not.
Although petitioner’s attorney offered no evidence at trial, he
objected to three of respondent’s exhibits. After hearing
argument on the objections, we overruled petitioner’s objections
and admitted the exhibits.
OPINION
I. Unreported Income
A. Burden of Production
Section 61(a) defines gross income for purposes of
calculating taxable income as “all income from whatever source
derived”. Respondent determined that petitioner received gross
income from VALIC and Nationwide, which petitioner failed to
report on a Federal income tax return for 2000.
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The Commissioner’s deficiency determination is normally
entitled to a presumption of correctness, Bone v. Commissioner,
324 F.3d 1289, 1293 (11th Cir. 2003), affg. T.C. Memo. 2001-43,
and the burden of proving the determination incorrect generally
rests with the taxpayer, Rule 142(a). However, when a case
involves unreported income and that case is appealable to the
Court of Appeals for the Eleventh Circuit, as this case appears
to be absent a stipulation to the contrary, the Commissioner’s
determination of unreported income is entitled to a presumption
of correctness only if the determination is supported by a
minimal evidentiary foundation linking the taxpayer to an income-
producing activity. Blohm v. Commissioner, 994 F.2d 1542, 1549
(11th Cir. 1993), affg. T.C. Memo. 1991-636; see also Golsen v.
Commissioner, 54 T.C. 742, 756 (1970) (Tax Court is bound to
apply the law of the circuit to which the case is appealable),
affd. 445 F.2d 985 (10th Cir. 1971). Once the Commissioner
produces evidence linking the taxpayer to an income-producing
activity, the burden shifts to the taxpayer to rebut the
presumption by establishing that the Commissioner’s determination
is arbitrary or erroneous. Blohm v. Commissioner, supra at 1549;
see also United States v. Janis, 428 U.S. 433, 441-442 (1976).
To satisfy his initial burden of production, respondent
introduced into evidence Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
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Insurance Contracts, etc., and other business records obtained
from and certified by VALIC and business records obtained from
and certified by Nationwide, including the contract for services
between petitioner and Nationwide and copies of petitioner’s
invoices for services rendered during 2000. Respondent
introduced the business records through written declarations
under rules 803(6) and 902(11) of the Federal Rules of Evidence.4
The business records that respondent introduced at trial
establish that petitioner received nonemployee compensation
during 2000. The business records include a contract between
petitioner and Nationwide in which Nationwide agreed to solicit
work for petitioner for a fee, invoices for service that show the
time expended by petitioner and petitioner’s earnings for such
work, and agency fee checks for petitioner’s work as an
independent contractor during 2000. The invoices support
4
Petitioner argued on brief that respondent had the burden
of proof regarding the unreported income adjustments and that
respondent did not satisfy that burden because the business
records offered at trial were inadmissible. As we discuss
elsewhere in this opinion, petitioner, not respondent, had the
burden of proof regarding the unreported income. Moreover, even
though respondent had an initial burden of producing evidence
connecting petitioner to the unreported income, respondent
satisfied his burden by introducing the VALIC and Nationwide
business records. The business records in question were kept in
the regular course of business and were properly authenticated in
certifications submitted under Fed. R. Evid. 803(6) and 902(11).
Therefore, the records were properly admitted into evidence at
trial, and we do not consider petitioner’s arguments further.
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respondent’s calculation that petitioner earned $171,069 for his
services during 2000.
The business records also establish that petitioner received
an early IRA distribution in 2000. Respondent introduced both a
Form 1099 and the distribution form submitted by petitioner
requesting the distribution. The distribution form bears
signatures of petitioner and his wife, and the form is notarized.
The notarized form contains a request for a partial account
distribution of $50,000 and Federal income tax withholding of 20
percent of the distribution.
Based on the above, we conclude that respondent laid the
requisite foundation for the contested unreported income
adjustments and that respondent’s determinations are entitled to
the presumption of correctness.
B. Burden of Proof
Once the Commissioner has satisfied his initial burden of
production with respect to the unreported income adjustments, the
taxpayer ordinarily has the burden of proving by a preponderance
of the evidence that the adjustments are erroneous or arbitrary.
Blohm v. Commissioner, supra at 1549; Lundgren v. Commissioner,
T.C. Memo. 2006-177. However, the burden of proof may shift to
the Commissioner under section 7491(a) if the taxpayer has
produced credible evidence relating to the tax liability at issue
and has met his substantiation requirements, maintained required
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records, and cooperated with the Secretary’s reasonable requests
for documents, witnesses, and meetings.
In this case, petitioner did not argue that section 7491(a)
operates to shift the burden of proof regarding the unreported
income adjustments to respondent, and he did not introduce any
evidence that he satisfied the requirements of section 7491(a).
In fact, petitioner did not attend the trial, and he did not
attempt, through his counsel, to introduce any evidence at all.
We conclude, therefore, that petitioner has the burden of proof
regarding the unreported income items and that he failed to carry
his burden. Respondent’s unreported income adjustments are
sustained.
II. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) authorizes the imposition of an addition
to tax for failure to file a timely return, unless it is shown
that such a failure is due to reasonable cause and not due to
willful neglect. See sec. 6651(a)(1); United States v. Boyle,
469 U.S. 241, 245 (1985); United States v. Nordbrock, 38 F.3d
440, 444 (9th Cir. 1994); Harris v. Commissioner, T.C. Memo.
1998-332. A failure to file a timely Federal income tax return
is due to reasonable cause if the taxpayer exercised ordinary
business care and prudence but nevertheless was unable to file
the return within the prescribed time. See sec. 301.6651-
1(c)(1), Proced. & Admin. Regs. Willful neglect means a
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conscious, intentional failure to file or reckless indifference
toward filing. See United States v. Boyle, supra at 245.
If the taxpayer assigns error to the Commissioner’s
determination that the taxpayer is liable for the addition to
tax, the Commissioner has the burden, under section 7491(c), of
producing evidence to show that the section 6651(a) addition to
tax applies. See Swain v. Commissioner, 118 T.C. 358, 364-365
(2002); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). In
order to meet his burden of production, the Commissioner must
come forward with sufficient evidence to show that it is
appropriate to impose the relevant penalty or addition to tax.
Higbee v. Commissioner, supra at 446. However, the Commissioner
is not required to introduce evidence regarding reasonable cause,
substantial authority, or similar defenses. Id.
Petitioner concedes he did not file a Federal income tax
return or application for extension of time to file for 2000.
That concession is sufficient to satisfy respondent’s burden of
producing evidence that the section 6651(a)(1) addition to tax
applies. Petitioner did not introduce any evidence to prove that
he had reasonable cause for his failure to file his 2000 income
tax return. Consequently, we sustain respondent’s
determination.5
5
Petitioner contended in his posttrial brief (but did not
offer any testimony at trial to support his contention) that he
(continued...)
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III. Addition to Tax Under Section 6654
Section 6654(a) imposes an addition to tax in the case of
any underpayment of estimated tax by an individual. If the
taxpayer assigns error to the Commissioner’s determination that
the taxpayer is liable for the addition to tax, the Commissioner
has the burden, under section 7491(c), of producing evidence to
show that the addition to tax applies. See Swain v.
Commissioner, supra at 364-365; Higbee v. Commissioner, supra at
446.
Under section 6654(d), the addition to tax is calculated
with reference to four required installment payments of the
taxpayer’s estimated tax liability. Sec. 6654(c). Each required
installment of estimated tax is equal to 25 percent of the
“required annual payment”. Sec. 6654(d). The “required annual
payment” is equal to the lesser of (1) 90 percent of the tax
shown on the individual’s return for that year (or, if no return
is filed, 90 percent of his or her tax for such year), or (2) if
the individual filed a return for the immediately preceding
5
(...continued)
did not file a return because, after taking into account withheld
tax, he did not owe any unpaid tax for 2000. We have held,
however, that a mistaken belief that no tax was due is not
sufficient to establish reasonable cause absent competent tax
advice or a good faith effort to ascertain the filing
requirements. See Shomaker v. Commissioner, 38 T.C. 192, 202
(1962); French v. Commissioner, T.C. Memo. 1991-196.
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taxable year, 100 percent of the tax shown on that return.6 Sec.
6654(d)(1)(A), (B), and (C). A taxpayer has an obligation to pay
estimated tax for a particular year only if he has a “required
annual payment” for that year. Sec. 6654(d); Wheeler v.
Commissioner, 127 T.C. ___, ___ (2006) (slip op. at 20-21).
To satisfy his burden of production, respondent introduced
evidence establishing that 90 percent of petitioner’s $86,858
income tax liability for 2000 was $78,172, that petitioner had
withholding tax credits of $14,628 for 2000, that petitioner made
no estimated tax payments for 2000, and that petitioner had filed
a Federal income tax return for 1999 showing a Federal income tax
liability of $52,589. This evidence is sufficient to satisfy
respondent’s initial burden of providing evidence that petitioner
had a required annual payment for 2000 payable in installments
under section 6654 and that petitioner underpaid his estimated
tax liability for 2000. Petitioner offered no evidence
whatsoever to refute respondent’s evidence or to establish a
defense to respondent’s determination that petitioner is liable
for the section 6654 addition to tax. Consequently, we conclude
that respondent’s determination that petitioner is liable for the
section 6654 addition to tax must be sustained.
6
If an individual’s adjusted gross income shown on the
previous year’s return exceeds $150,000, a higher percentage may
apply. See sec. 6654(d)(1)(C).
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To reflect the foregoing,
Decision will be entered
under Rule 155.