T.C. Summary Opinion 2007-85
UNITED STATES TAX COURT
ANDREW S. CIRBO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2444-06S. Filed May 24, 2007.
Andrew S. Cirbo, pro se.
Robert A. Varra, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code as in effect for the year at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Pursuant to section 7463(b), the decision to be entered is not
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reviewable by any other court, and this opinion shall not be
treated as precedent for any other case.
Respondent determined for 2003 a deficiency in petitioner’s
Federal income tax of $11,385 and a section 6662(a) accuracy-
related penalty of $2,277. The issues for decision are whether
petitioner: (1) Received unreported nonemployee compensation in
2003, (2) is subject to self-employment tax, and (3) is liable
for a section 6662(a) accuracy-related penalty.
Background
The stipulated facts and the exhibits received into evidence
are incorporated herein by reference. At the time the petition
in this case was filed, petitioner resided in Centennial,
Colorado.
During 2003, petitioner was an insurance agent licensed in
Colorado. In February of 2003, petitioner was approached by
Patrick Donlon (Donlon) who at that time was organizing a
Colorado entity called Secure Investments and Planning, LLC
(Investments). Investments did not employ a licensed insurance
agent because its primary focus was the mortgage business.
Donlon asked petitioner whether he would be willing to be
the agent of record at North American Company for Life and Health
Insurance (NACOLAH) for Investments, in the event that
Investments wanted to sell products associated with life or
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health insurance. Petitioner agreed. On February 11, 2003,
petitioner signed a Contract Application with NACOLAH on which he
listed his business name as “Secure Investments & Planning”. The
parties agreed that petitioner was an independent contractor for
Investments. Petitioner also worked as an assistant agent to a
registered agent for another insurance company during 2003.
Petitioner and Donlon orally agreed that Investments would
pay to petitioner a fee if an insurance product was sold using
petitioner’s license. Petitioner and Donlon, however, did not
agree specifically how a fee would be paid or calculated if a
commission were earned from NACOLAH.
On behalf of Investments, petitioner signed about four or
five applications for policies that were submitted to NACOLAH.
NACOLAH issued to petitioner Agent Commission Statements showing
that two policies, one on March 10 and one on March 11, 2003,
were sold using petitioner’s license, generating total
commissions of $35,061.76. On March 12, 2003, an Agent Contract
Transmittal Form was submitted to NACOLAH to request a contract
change. The form indicated that effective March 12, 2003, there
was an “assignment of comm[issions]” from petitioner to
Investments.
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Immediately thereafter, NACOLAH issued two checks totaling
$35,061.76, dated March 12 and 13, 2003, made payable to
petitioner for commissions earned. The checks were sent to
Investments’ business address and were deposited by Donlon into
an account maintained by Investments. Investments subsequently
paid the taxes on the commissions.
Petitioner filed a 2003 Form 1040, U.S. Individual Income
Tax Return, reporting wages of $7,194, unemployment compensation
of $7,610, taxable refunds of $401, and adjusted gross income of
$15,205. Respondent received from NACOLAH a Form 1099-MISC,
Miscellaneous Income, reporting that commissions of $35,061 were
paid to petitioner in 2003. On November 7, 2005, respondent
issued to petitioner a statutory notice of deficiency determining
that petitioner had unreported income of $35,061 in 2003.
Discussion
The Commissioner’s determinations are presumed correct, and
generally taxpayers bear the burden of proving otherwise. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Under section 6201(d), the burden of production may shift to
the Commissioner where an information return, such as a Form
1099, serves as the basis for the determination of a deficiency.
If a taxpayer asserts a reasonable dispute with respect to any
item of income reported on a third-party information return and
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the taxpayer has fully cooperated with the Secretary, the
Secretary shall have the burden of producing reasonable and
probative information concerning that deficiency in addition to
the information return.
Petitioner has asserted a reasonable dispute with respect to
the income reported by NACOLAH on the Form 1099-MISC and has
cooperated with the Secretary. Petitioner asserts that he is not
liable for the deficiency and the section 6662(a) accuracy-
related penalty because he did not receive the commissions
reported on the Form 1099-MISC in 2003. Petitioner offered his
oral testimony as evidence. Petitioner’s testimony was
corroborated by Donlon’s admission at trial and by canceled
checks from NACOLAH that were deposited into an account
maintained by Investments in 2003.
There is no suggestion that petitioner failed to cooperate
fully with respondent. The Court concludes that respondent has
the burden of producing reasonable and probative information
concerning the deficiency and the Form 1099-MISC.
Respondent concedes that petitioner did not receive the
checks from NACOLAH. Respondent nevertheless determined that
petitioner had unreported income, around $2,000 to $3,000, which
respondent asserts was the amount petitioner received from
Investments for the use of his license in selling the insurance
policies that generated the commissions reported by NACOLAH.
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Petitioner claims that he “did not receive a dime of commission”,
from Investments or Donlon, in connection with the policies.
At trial, respondent called Donlon as a witness. Other than
Donlon’s belief that petitioner would not have agreed to
Investments’ using his insurance license for free, there is no
evidence that petitioner actually received a fee from Investments
for the use of his license in the sale of policies for NACOLAH.
Even if petitioner did receive a fee from Investments, the
amount that was actually paid is unknown because Investments did
not issue to petitioner a Form 1099 for 2003. Donlon testified
that he did not remember how petitioner was paid, and he
“estimated” that petitioner was paid a fee between $2,000 to
$3,000 for the use of his insurance license. Donlon’s testimony,
however, was not supported by any documentation.
Accordingly, the Court finds that petitioner is not liable
for the 2003 deficiency and section 6662(a) accuracy-related
penalty because respondent has failed to satisfy his burden of
production with respect to the deficiency and the Form 1099-MISC
under section 6201(d).
To reflect the foregoing,
Decision will be entered
for petitioner.