McCammon v. Comm'r

T.C. Memo. 2008-114

UNITED STATES TAX COURT

JULIE K. MCCAMMON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10677-06. Filed April 24, 2008.

Julie K. McCammon, pro se.

Alisha M. Harper, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Respondent determined a deficiency of $49,308

in petitioner’s Federal income tax and an accuracy-related

penalty of $9,861.60 under section 6662(a) for 2003.1

1
All section references are to the Internal Revenue Code
(Code) for the year at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
 - 2 -

The issues for decision are:

(1) Whether petitioner is liable for tax on $8 of interest

income. We hold that she is;

(2) whether petitioner is liable for tax on $2,224 of

dividend income. We hold that she is;

(3) whether petitioner is liable for tax on $191,307 of

wages. We hold that she is;

(4) whether petitioner is liable for tax on $190,567 of

flow-through income from her wholly owned S corporation. We hold

that she is;

(5) whether petitioner is liable for an accuracy-related

penalty under section 6662(a) of $22,821.40. We hold that she is

liable for this penalty; and

(6) whether petitioner is liable for a penalty under

section 6673. We hold that she is liable for this penalty.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulated facts and the accompanying exhibits are

incorporated herein by this reference. Petitioner resided in

West Virginia at the time this petition was filed.

Petitioner is a medical doctor and the sole shareholder and

president of Julie McCammon, M.D., Inc. (petitioner’s S

corporation).
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Petitioner filed a Form 1040, U.S. Individual Income Tax

Return, for tax year 2003 showing zero tax liability. Attached

to petitioner’s return was a statement explaining that petitioner

did not have any income “in a constitutional sense”.

Petitioner’s S corporation filed a Form 1120S, U.S. Income

Tax Return for an S Corporation, showing ordinary income of

$190,567 after deductions, including a deduction for compensation

of officers in the amount of $191,308. This $191,308 reflects

income paid to petitioner as president of petitioner’s S

corporation. A portion of respondent’s deficiency determination

was based on this unreported wage income.

Attached to the Form 1120S was a Schedule K-1, Shareholder’s

Share of Income, Credits, Deductions, etc., listing petitioner as

the 100-percent shareholder and showing ordinary income from

trade or business activities in the amount of $190,567.

Respondent examined petitioner’s Form 1040 and determined,

using information from third-party payors, that petitioner had

understated her income by $194,881. The understatement included

unreported income from interest, dividends, and wages. It did

not include the ordinary income of petitioner’s S corporation.

Respondent sent petitioner a statutory notice of deficiency dated

April 14, 2006, for the 2003 tax year.

On May 30, 2006, petitioner mailed a letter to the Court

that was filed on June 5, 2006, as an imperfect petition. The
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Court ordered petitioner to submit a proper amended petition to

conform with the Rules. On August 28, 2006, the Court received

and filed petitioner’s amended petition. In the amended

petition, petitioner sets forth specific reasons she disagrees

with respondent’s notice of deficiency.

In response, respondent filed an answer to the amended

petition. In addition, respondent filed a motion for leave to

file amendment to answer to amended petition seeking to increase

petitioner’s tax deficiency and penalty under section 6662(a).

The increases in the deficiency and penalty were based upon

respondent’s inclusion of the ordinary income of petitioner’s S

corporation in petitioner’s income.

The Court granted respondent’s motion to amend, and the

amendment to answer to amended petition was filed reflecting a

recalculated and increased deficiency and penalty for the 2003

tax year. The increased deficiency and penalty were: (1) A

deficiency in tax of $114,107, and (2) a penalty of $22,821.40

under section 6662(a). Respondent’s position was that petitioner

received but failed to report: (1) $8 of interest income from H.

Arthur Samet Childrens Trust; (2) $2,224 of dividends from H.

Arthur Samet Childrens Trust; (3) $191,307 of wages from

petitioner’s S corporation; and (4) $190,567 of flow-through

income from petitioner’s S corporation.
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At trial petitioner orally moved for a continuance, which

was denied. Petitioner claimed that she was unprepared and

unable to proceed because she had planned on having her C.P.A.

(who was not admitted to practice before this Court) represent

her. Petitioner was not prepared in any way for trial. She did

not have any documentation or evidence of any kind and was not

represented by counsel.

Petitioner’s 2000, 2001, and 2002 Tax Years

Petitioner is not new to this Court. Petitioner’s 2000,

2001, and 2002 tax liabilities were redetermined by this Court in

the case of McCammon v. Commissioner, T.C. Memo. 2007-3 (McCammon

I). In this earlier case petitioner put forth the same

arguments, failed to comply with various orders before trial, and

failed to present evidence to support her arguments, as she has

in the case at hand.

In McCammon I petitioner’s Forms 1040 for 2000 and 2002

(petitioner did not file a Form 1040 for 2001) each showed a zero

tax liability and included a statement similar to the one

attached to her 2003 return (the year at issue herein), alleging

that petitioner was not liable for any tax. Petitioner also made

numerous requests for continuances. These requests were based

upon circumstances similar to those made in this case: (1)

Petitioner was not prepared; (2) petitioner’s prior accountant

was responsible for any and all errors; and (3) petitioner’s
 - 6 -

current accountant was newly hired and not yet prepared to

represent her.

In McCammon I, petitioner was warned in a letter dated July

27, 2006, from the Court that it appeared that she was

instituting proceedings primarily for delay and that she had

unreasonably failed to pursue administrative remedies.

Petitioner was also warned that she was subjecting herself to the

possible imposition of penalties under section 6673 if she

continued to maintain meritless proceedings. In response,

petitioner filed a motion requesting a continuance.

Petitioner’s motion was denied, as there was no justification for

postponing a trial without any assurances from petitioner that

she would make an effort to cooperate in the determination of her

tax liabilities. Petitioner then filed a motion to recuse,

alleging that the Judge had “a personal bias and prejudice

against petitioner as a pro se litigant.” McCammon v.

Commissioner, supra.

Petitioner’s motion to recuse was denied and the case called

for trial. Petitioner requested yet another continuance. This

request was based upon petitioner’s claims that she was too busy

with her medical practice to collect documents and present them

to respondent, that petitioner’s accountant had quit over 8

months earlier, and that petitioner’s new accountant had been

hired only 2 weeks earlier.
 - 7 -

At trial in McCammon I, petitioner was still unable to

identify any erroneous items included in respondent’s

determination or any allowable deductions. Petitioner, however,

was given one final opportunity posttrial to substantiate her

deductions. The Court issued an order finding petitioner in

default pursuant to Rule 123(a) because of her failure to comply

with previous Court orders and ordering her to show cause in

writing why the cases should not be dismissed by reason of her

failure to properly prosecute. The order to show cause required

petitioner to provide (1) proof that she delivered to respondent

any documents substantiating deductions, exemptions, or credits

to which she claimed entitlement, and (2) a report and

accompanying documentation relating to any other disputed issues.

Petitioner failed to comply with the Court order.

Although petitioner had failed to comply with the Court’s

order and the date for submitting documents to both respondent

and this Court had passed, respondent indicated a willingness to

give petitioner additional time to provide substantiation of any

items she would like to have considered. Again petitioner failed

to comply. Instead, petitioner responded with “a letter

containing a spurious attack on respondent’s counsel.” McCammon

v. Commissioner, supra.

Petitioner was warned of the consequences of her failure to

produce evidence in support of her case. In addition, she did
 - 8 -

not comply with the orders of the Court and made no efforts to

contest respondent’s determinations on the merits. Thus, the

Court deemed the order to show cause absolute and dismissed

petitioner’s cases. The Court also warned petitioner not to

engage in similar dilatory conduct in any other case, stating:

“[I]nasmuch as petitioner has filed another petition in this

Court for 2003 (docket No. 10677-06), she is hereby warned that

the type of recalcitrance, obstruction, and procrastination

evident in these cases may result in an additional sanction of up

to $25,000.” McCammon v. Commissioner, supra.

Petitioner’s 2003 Tax Year

In the case presently before us, it is clear that petitioner

has not learned from her prior experiences before the Court.

Petitioner continues to put forth the same arguments she made

without success in McCammon I.

Although we denied petitioner’s request for a continuance,

we kept the record open to allow petitioner to make available to

respondent any documentation she intended to offer into the

record. Respondent, in a status report, notified the Court that

respondent had not had any contact from petitioner. She had not

presented any evidence or documentation to respondent relating to

the amounts at issue but instead argued that Federal law, as it

related to medical records, prevented her from submitting any

evidence.
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OPINION

Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer bears the

burden of proving that the determinations are incorrect. Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section

7491(a) places the burden of proof on the Commissioner if the

taxpayer introduces credible evidence with respect to any factual

issue relevant to ascertain her liability, has complied with

substantiation requirements, has maintained all records required,

and has cooperated with reasonable requests for witnesses,

information, documents, meetings, and interviews. Petitioner has

done none of these things, and the burden of proof remains on

her. The burden of proof is on the Commissioner, however, in

regard to any increases in deficiency. Rule 142(a); Hurst v.

Commissioner, 124 T.C. 16, 30 (2005). Consequently, the burden

of proof is on petitioner in regard to the interest, dividends,

and wages and is on respondent with regard to the S corporation

flow-through income and increase in the penalty under section

6662(a).

Wages, Interest, and Dividends

Taxable income includes gross income. Sec. 63(a). Gross

income includes compensation for services, interest, and

dividends. Sec. 61(a)(1), (4), (7).
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The deficiencies assessed against petitioner were based upon

information provided by third parties, including a Form 1099-DIV,

Dividends and Distributions, and a Form W-2, Wage and Tax

Statement.

If a taxpayer asserts a reasonable dispute with respect to

any item of income reported on a third-party information return

and the taxpayer has fully cooperated with the Secretary, the

Secretary has the burden of producing reasonable and probative

information concerning that deficiency in addition to the

information return. Sec. 6201(d); Richardson v. Commissioner,

T.C. Memo. 2005-143. Petitioner did not produce any evidence,

either at trial or posttrial, showing that she did not receive

the wages, interest, or dividends at issue. Therefore, the

amounts that respondent determined petitioner received but failed

to report constitute taxable income.

S Corporation Flow-Through Income

Section 1366(a)(1) provides that in determining his income

tax liability an S corporation shareholder shall take into

account his pro rata share of the S corporation’s items of

income, loss, deduction, and credit for the S corporation’s

taxable year ending with or in the shareholder’s taxable year.

“The S corporation’s income is taxable to the shareholder

regardless of whether any income is distributed.” Dunne v.
 - 11 -

Commissioner, T.C. Memo. 2008-63; Chen v. Commissioner, T.C.

Memo. 2006-160; Knott v. Commissioner, T.C. Memo. 1991-352.

Respondent submitted certified copies of petitioner’s Form

1040 and petitioner’s S corporation’s Form 1120S, both signed by

petitioner. At trial petitioner admitted that Julie K. McCammon,

M.D., Inc., was her corporation. The Schedule K-1 filed with the

Form 1120S reported net income of $190,567, allocated in its

entirety to petitioner as the sole shareholder. Petitioner did

not produce any evidence either at trial or posttrial to refute

that the income of the corporation was includable on her Form

1040. Respondent has met the burden of proof as it relates to

petitioner’s flow-through income from her S corporation and it

shall be included in petitioner’s taxable income.

Section 6662 Penalty

Section 6662(a) and (b)(2) provides that taxpayers will be

liable for a penalty equal to 20 percent of the portion of the

underpayment of tax attributable to a substantial understatement

of income tax. Section 6662(d)(1)(A) provides that a substantial

understatement of income tax exists if the amount of the

understatement exceeds the greater of (1) 10 percent of the tax

required to be shown on the return or (2) $5,000. Section

6664(c)(1) provides that the accuracy-related penalty is not

imposed with respect to any portion of the understatement for

which the taxpayer acted with reasonable cause and in good faith.
 - 12 -

Respondent asserted that petitioner is liable for an

accuracy-related penalty of $22,821.40 under section 6662. This

addition is a computational penalty directly related to the

amount of petitioner’s deficiency. Petitioner was required to

report a tax liability of $114,107 and underreported her tax

liability by $114,107. Therefore, respondent has satisfied his

burden of production under section 7491(c) because petitioner

understated her income tax by both $5,000 and more than 10

percent.

Respondent has carried his burden of production with regard

to the accuracy-related penalty determined in the notice of

deficiency. See Bhattacharyya v. Commissioner, T.C. Memo. 2007-

19. In addition, respondent has carried his burden of proof with

respect to the increased deficiency, and therefore the increased

section 6662 penalty computed directly thereon, asserted in the

amendment to answer.

Petitioner has failed to produce sufficient evidence to

substantiate her deductions or other claims and has failed to

prove that she is entitled to a reduction of the understatement

under section 6664(c)(1) or section 6662(d)(2)(B)(i) or (ii).2

2
Under sec. 6662(d)(2)(B)(i) and (ii) the amount of a tax
understatement may be reduced by the portion thereof that is
attributable to (i) the tax treatment of an item for which there
was substantial authority; or (ii) any item if the relevant facts
affecting the item’s tax treatment are adequately disclosed in
the return or in a statement attached to the return and there is
(continued...)
 - 13 -

Therefore we sustain respondent’s determinations under section

6662.

Additional Arguments

Petitioner, at various times since petitioning the Court,

has made two additional arguments: (1) That the Code is too

complex; and (2) that the Health Insurance Portability and

Accountability Act (HIPAA), Pub. L. 104-191, sec. 501, 110 Stat.

2090, precluded her from presenting any evidence or records

relating to her medical practice.

Petitioner’s argument that the Code is too complex and

therefore cannot be relied upon to support the imposition of

Federal income tax fails. We have previously considered similar

arguments and found them to be without merit. See Halcott v.

Commissioner, T.C. Memo. 2004-214.

Petitioner argued that she could not provide any records

relating to the amounts at issue because to do so would violate

HIPAA. A taxpayer is required to maintain records sufficient to

enable the Commissioner to determine his or her correct tax

liability. Sec. 6001; Abdelhak v. Commissioner, T.C. Memo. 2006-

158. Nothing in HIPAA alters this requirement. Petitioner was

required but failed to maintain records sufficient to determine

her tax liability. See Abdelhak v. Commissioner, supra.

2
(...continued)
a reasonable basis for the tax treatment of the item.
 - 14 -

Section 6673 Penalty

Section 6673(a)(1) authorizes the Tax Court to impose a

penalty of up to $25,000, payable to the United States, when:

(1) A taxpayer institutes or maintains a proceeding primarily for

delay; (2) the taxpayer’s position in the proceeding is frivolous

or groundless; or (3) the taxpayer unreasonably failed to pursue

available administrative remedies. Edwards v. Commissioner, T.C.

Memo. 2003-149, affd. 119 Fed. Appx. 293 (D.C. Cir. 2005).

We find that the present situation warrants the imposition

of such a penalty. Petitioner was warned in McCammon I not to

institute meritless proceedings but failed to heed that warning.

Petitioner remained undeterred from (1) delaying these

proceedings, (2) putting forth frivolous or groundless arguments,

and (3) refusing to provide any evidence in support of her

positions and statements. Petitioner was uncooperative and

unreasonable at every stage of these proceedings. See Edwards v.

Commissioner, supra. Accordingly, under the circumstances

presented, we shall impose a penalty of $25,000 on petitioner

under section 6673(a)(1).

To reflect the foregoing,

An appropriate order and

decision will be entered.