T.C. Memo. 2009-189
UNITED STATES TAX COURT
JOSHUA A. VAN RYSWYK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5607-08. Filed August 19, 2009.
James R. Monroe, for petitioner.
Michael W. Bitner, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined the following defi-
ciency in, and additions to, petitioner’s Federal income tax
(tax) for his taxable year 2004:
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Additions to Tax
1
Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
$16,776 $3,774.60 $2,768.04 $486.97
The issues remaining for decision for petitioner’s taxable
year 2004 are:
(1) Are certain commissions that petitioner received during
2004 includible as nonemployee compensation in his gross income?
We hold that they are.
(2) Is petitioner entitled to deduct under section 162(a)
certain amounts that he claims he paid to Baccam & Associates
(B&A) during 2004? We hold that he is not.
(3) Is petitioner entitled to deduct under section 162(a)
certain claimed expenses that B&A showed as deductions in the tax
return that it filed for taxable year 2004? We hold that he is
not.
(4) Is petitioner liable for the addition to tax under
section 6651(a)(1)? We hold that he is.
(5) Is petitioner liable for the addition to tax under
section 6654(a)? We hold that he is.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time petitioner filed the petition in this case, he
resided in Iowa.
1
All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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Mr. and Mrs. Van Ryswyk, petitioner’s parents, adopted
petitioner as an infant. They also were the foster parents of
Oai Baccam (Mr. Baccam) and certain of Mr. Baccam’s biological
siblings, all of whom had emigrated around 1976 to the United
States from Vietnam. Petitioner and his foster brother Mr.
Baccam grew up together in Mr. and Mrs. Van Ryswyk’s home.
Around 2000, petitioner graduated from college and moved to
California. While in California, petitioner lived with Mr.
Baccam and certain of Mr. Baccam’s biological siblings.
In 2000, petitioner and Mr. Baccam incorporated B&A. During
2004, the year at issue, Mr. Baccam owned 90 percent, and peti-
tioner owned 10 percent, of B&A, an S corporation. At all
relevant times, B&A used certain computer software to maintain
its books and records, which were under Mr. Baccam’s control.
During 2004, petitioner and Mr. Baccam were licensed to sell
financial products, including certain security, annuity, and
insurance products (financial products), but B&A was not. The
companies that offered those financial products (financial
products companies) entered into agreements with petitioner, and
not with B&A, pursuant to which he agreed to sell on their behalf
their respective financial products. In return for his services,
the financial products companies agreed to pay petitioner certain
commissions based on the sales that he generated.
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During 2003, petitioner received the following payments
totaling $213,894 from the companies indicated:
Company Amount
Premium Escrow, Inc. $94,500
Ameritrade, Inc. 341
Allianz Life Insurance Co. 7,919
Midland National Life Insurance Co. 61,409
American Investors Life Insurance Co. 14,378
Intersecurities, Inc. 3,647
LPL Financial Services Corp. 31,700
The companies that made the payments listed above did not
withhold tax therefrom. Moreover, petitioner did not make any
estimated tax payments, or file a tax return (return), for his
taxable year 2003.
During 2004, petitioner received the following payments
totaling $58,529 as commissions (2004 commissions or commission
payments) from the companies indicated:
Company Amount
Allianz Life Insurance Co. $26,790
Intersecurities, Inc. 30,739
TTT East Coast, Inc. 1,000
During 2004, petitioner deposited the 2004 commissions into his
personal bank account.
Each of the three companies that made commission payments to
petitioner during 2004 issued to him Form 1099-MISC, Miscella-
neous Income, for that year. Each of those companies showed in
that form the amount of commissions that it paid to petitioner
during 2004.
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During 2004, Ameritrade, Inc. (Ameritrade), paid to peti-
tioner $634 as proceeds (securities proceeds) from the sale of
certain securities that he held through that company. Ameritrade
issued to petitioner Form 1099-B, Proceeds From Broker and Barter
Exchange Transactions (Form 1099-B), for that year. In that
form, Ameritrade showed $634 as proceeds from “Stocks, bonds,
etc.”2
Neither the companies that made commission payments nor
Ameritrade that paid securities proceeds to petitioner during
2004 withheld tax therefrom. Moreover, petitioner did not make
any estimated tax payments, or file a return, for his taxable
year 2004.
Respondent issued to petitioner a notice of deficiency for
his taxable year 2004 (2004 notice). In that notice, respondent
determined, inter alia, that the 2004 commissions are includible
as nonemployee compensation in petitioner’s gross income for his
taxable year 2004. In the 2004 notice, respondent also deter-
mined that petitioner is liable for his taxable year 2004 for
additions to tax under, inter alia, sections 6651(a)(1) and
6654(a).
2
The record in this case does not contain Form 1099-B that
Ameritrade issued to petitioner for his taxable year 2004. As a
result, we do not know whether Ameritrade showed in that form the
$634 in question as “Gross proceeds” or “Gross proceeds less
commissions and option premiums”.
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Around November 28, 2008, approximately two months before
the trial in this case, B&A filed Form 1120S, U.S. Income Tax
Return for an S Corporation, for its taxable year 2004 (2004 S
corporation return), which Mr. Baccam, B&A’s president, had
signed. In the 2004 S corporation return, B&A (1) showed gross
receipts and total income of $59,723, (2) claimed deductions
totaling $55,764, and (3) showed ordinary income from trade or
business activities of $3,959. B&A included with the 2004 S
corporation return Schedule K-1, Shareholder’s Share of Income,
Deductions, Credits, etc., for taxable year 2004 (2004 Schedule
K-1) with respect to each of its two stockholders. In the 2004
Schedule K-1 that B&A completed with respect to petitioner, B&A
showed $396 as ordinary business income, which equaled peti-
tioner’s proportionate share of B&A’s ordinary income from trade
or business activities.3
OPINION
Petitioner bears the burden of establishing that the deter-
minations in the 2004 notice that remain at issue are wrong.4
See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
3
The treatment shown in the 2004 Schedule K-1 that B&A
completed with respect to petitioner is consistent with the
required tax treatment of an S corporation and its stockholders.
4
Petitioner does not claim that the burden of proof shifts
to respondent under sec. 7491(a).
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Evaluation of Evidence on Which Petitioner Relies
In support of his position with respect to each of the
issues in this case, petitioner relies primarily on his own
testimony and the testimony of his foster brother, Mr. Baccam.
We found petitioner’s testimony to be in certain material re-
spects questionable, conclusory, uncorroborated, and/or self-
serving. We also found Mr. Baccam’s testimony to be in certain
material respects questionable, conclusory, uncorroborated,
and/or serving the interests of his foster brother, petitioner.
We are not required to, and we shall not, rely on the respective
testimonies of petitioner and Mr. Baccam in order to establish
petitioner’s respective positions with respect to the issues
presented. See, e.g., Tokarski v. Commissioner, 87 T.C. 74, 77
(1986).
Commission Income
It is petitioner’s position that the 2004 commissions are
not includible as nonemployee compensation in his gross income
for his taxable year 2004 because they constitute the gross
receipts of B&A for that year.5
A taxpayer is not required to treat as income amounts that
the taxpayer “did not receive under a claim of right, which were
5
In the alternative, it is petitioner’s position that he is
entitled to certain deductions under sec. 162(a) that would
offset the 2004 commissions. We address below petitioner’s
alternative position.
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not his to keep, and which * * * [the taxpayer] was required to
transmit to someone else as a mere conduit.” Diamond v. Commis-
sioner, 56 T.C. 530, 541 (1971), affd. 492 F.2d 286 (7th Cir.
1974). A person’s prompt payment to another person of all the
amounts that the person receives is indicative that the person
receiving those amounts has no claim to them. See Goodwin v.
Commissioner, 73 T.C. 215, 230 (1979).
In support of his position that the 2004 commissions are not
includible as nonemployee compensation in his gross income for
his taxable year 2004, petitioner argues (1) that during 2004,
pursuant to an agreement between himself and B&A, he (a) received
those commissions on behalf of B&A and (b) paid them to B&A and
(2) that B&A reported those commissions as gross receipts in the
2004 S corporation return.
The principal evidence to support petitioner’s arguments is
his own testimony and the testimony of Mr. Baccam, on which we
are unwilling to rely. Petitioner has not introduced reliable
evidence that during 2004 he had an agreement with B&A under
which he was required to, and did, pay the 2004 commissions to
B&A. Nor has petitioner introduced reliable evidence (1) that
B&A showed gross receipts of $59,723 in the 2004 S corporation
return because during 2004 it received that amount of gross
receipts from him or (2) that that amount consisted of the 2004
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commissions of $58,529 that he received during that year and
unidentified gross receipts of $1,194.6
On the record before us, we find that petitioner has failed
to carry his burden of establishing that during 2004 he had an
agreement with B&A under which he was required to, and did, pay
the 2004 commissions to B&A. On that record, we find that
petitioner has failed to carry his burden of establishing that
the 2004 commissions are not includible as nonemployee compensa-
tion in his gross income for his taxable year 2004.
Claimed Deductions
In the alternative, it is petitioner’s position that if we
were to find, as we have, that the 2004 commissions are
includible as nonemployee compensation in his gross income for
his taxable year 2004, he would be entitled to certain deductions
under section 162(a) that would offset those commissions.
Deductions are strictly a matter of legislative grace, and
the taxpayer bears the burden of proving entitlement to any
deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
84 (1992). A taxpayer is required to maintain records sufficient
6
Mr. Baccam, petitioner’s foster brother and B&A’s presi-
dent, filed B&A’s 2004 S corporation return approximately two
months before the trial in this case. The record does not
establish that respondent had examined that return before the
trial took place. We believe that Mr. Baccam filed B&A’s 2004 S
corporation return when he did in an effort to bolster peti-
tioner’s position in this case that the 2004 commissions are
includible in B&A’s gross receipts, and not in his gross income,
for taxable year 2004.
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to establish the amount of any deduction claimed. Sec. 6001;
sec. 1.6001-1(a), Income Tax Regs. A taxpayer is entitled to
deduct all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on a trade or business. Sec.
162(a).
In support of his alternative position, petitioner advances
two arguments. First, petitioner argues that he is entitled to
deduct under section 162(a) $58,529, the amount of the 2004
commissions, because during 2004 he was required to, and did, pay
that amount to B&A pursuant to an agreement between himself and
B&A. We have found that petitioner has failed to carry his
burden of establishing that during 2004 he had an agreement with
B&A under which he was required to, and did, pay the 2004 commis-
sions to B&A. On the record before us, we find that petitioner
has failed to carry his burden of establishing that for his
taxable year 2004 he is entitled to deduct under section 162(a)
the amount of the 2004 commissions.
Second, petitioner argues that he is entitled to deduct
under section 162(a) the claimed expenses that B&A showed as
deductions in the 2004 S corporation return. Petitioner does not
contend that during 2004 he paid or incurred any of those claimed
expenses, let alone that he paid or incurred them in carrying on
his own trade or business. On the record before us, we find that
petitioner has failed to carry his burden of establishing that
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for his taxable year 2004 the claimed expenses that B&A showed as
deductions in the 2004 S corporation return were ordinary and
necessary expenses that he paid or incurred in carrying on his
own trade or business. On that record, we find that petitioner
has failed to carry his burden of establishing that for his
taxable year 2004 he is entitled to deduct under section 162(a)
any of those claimed expenses.
Additions to Tax
It is respondent’s position that petitioner is liable for
the respective additions to tax under sections 6651(a)(1) and
6654(a) that respondent determined in the 2004 notice.
Section 6651(a)(1) imposes an addition to tax for failure to
file timely a return unless the failure to file timely is due to
reasonable cause, and not to willful neglect. Section 6654(a)
imposes an addition to tax in the case of an underpayment of
estimated tax by an individual.7 The addition to tax under that
7
For purposes of sec. 6654(a), it is necessary to determine
whether there is an underpayment of a required installment of
estimated tax. See sec. 6654(a) and (b). In this connection,
the amount of any required installment is 25 percent of the
required annual payment. Sec. 6654(d)(1)(A). The required
annual payment is equal to the lesser of (1) 90 percent of the
tax shown in the return for the taxable year or if no return was
filed, 90 percent of the tax for such year, or (2) if the indi-
vidual filed a return for the preceding taxable year, (a) 110
percent of the tax shown in such return if the taxpayer’s ad-
justed gross income shown in such return exceeds $150,000 or
(b) 100 percent of the tax shown in such return if the taxpayer’s
adjusted gross income shown in such return does not exceed
$150,000. Sec. 6654(d)(1)(B) and (C)(i).
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section is mandatory unless petitioner qualifies under one of the
exceptions in section 6654(e).8
Respondent must carry the burden of production with respect
to the respective additions to tax under sections 6651(a)(1) and
6654(a) at issue here. See sec. 7491(c); Higbee v. Commissioner,
116 T.C. 438, 446-447 (2001). To satisfy that burden, respondent
must come forward with sufficient evidence indicating that it is
appropriate to impose each of those additions to tax. See Higbee
v. Commissioner, supra at 446. Although respondent bears the
burden of production with respect to the respective additions to
tax under sections 6651(a)(1) and 6654(a) at issue here, respon-
dent “need not introduce evidence regarding reasonable cause
* * * or similar provisions. * * * the taxpayer bears the burden
of proof with regard to those issues.” Id.
8
Sec. 6654(e) provides that no addition to tax is to be
imposed under sec. 6654(a) for any taxable year if (1) the tax
shown in the return for such taxable year (or if no return is
filed, the tax), reduced by the credit allowable under sec. 31,
is less than $1,000, sec. 6654(e)(1); (2) the preceding taxable
year was a taxable year of 12 months, the individual did not have
any liability for such preceding taxable year, and the individual
was a citizen or resident of the United States throughout such
preceding taxable year, sec. 6654(e)(2); (3) the Secretary of the
Treasury (Secretary) determines that by reason of casualty,
disaster, or other unusual circumstances the imposition of such
addition to tax would be against equity and good conscience, sec.
6654(e)(3)(A); or (4) the Secretary determines that during the
taxable year for which the estimated payments are required or the
taxable year preceding such taxable year the taxpayer retired
after having attained the age of 62 or became disabled, and the
underpayment of any estimated tax was due to reasonable cause and
not to willful neglect, sec. 6654(e)(3)(B).
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We turn first to the addition to tax under section
6651(a)(1). We have found that petitioner did not file a return
for his taxable year 2004. On the record before us, we find that
respondent has carried respondent’s burden of production under
section 7491(c) with respect to the addition to tax under section
6651(a)(1) that respondent determined in the 2004 notice.
As we understand it, it is petitioner’s position that he had
reasonable cause for his failure to file a return for his taxable
year 2004 and that therefore he is not liable for the addition to
tax under section 6651(a)(1). In support of that position,
petitioner advances two arguments. First, petitioner argues that
he did not receive from B&A Schedule K-1 for his taxable year
2004. Consequently, he claims that he did not have the informa-
tion that he needed in order to file his return for that year.
The unavailability of information or records does not
necessarily establish reasonable cause for failure to file timely
a return. Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324,
1342-1343 (1971), affd. without published opinion 496 F.2d 876
(5th Cir. 1974). A taxpayer is required to file timely based
upon the best information available and to file thereafter an
amended return if necessary. Estate of Vriniotis v. Commis-
sioner, 79 T.C. 298, 311 (1982).
Assuming arguendo that petitioner did in fact fail to file
his return for his taxable year 2004 because B&A did not send to
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him Schedule K-1 for his taxable year 2004, on the record before
us, we nonetheless would find that petitioner has failed to carry
his burden of establishing that that reason constitutes reason-
able cause for his failure to file.
Second, petitioner argues that he had reasonable cause for
his failure to file a return for his taxable year 2004 because he
was not required to file such a return since his gross income for
that year did not exceed the required threshold amount under
section 6012(a)(1)(A)(i) for filing a return.9 Petitioner’s
argument is based on his position that the 2004 commissions are
not includible as nonemployee compensation in his gross income
for his taxable year 2004. We have found that petitioner has
failed to carry his burden of establishing that position. On the
record before us, we find that petitioner has gross income for
his taxable year 2004 in excess of the threshold amount set forth
in section 6012(a)(1)(A)(i).
9
Sec. 6012(a)(1)(A)(i) provides in pertinent part that a
taxpayer who is single is not required to file a return for a
taxable year if the taxpayer’s gross income for that year is less
than “the sum of the exemption amount plus the basic standard
deduction applicable to such an individual”. For purposes of
sec. 6012(a)(1)(A)(i), the “exemption amount” for taxable year
2004 is $3,100. See secs. 6012(a)(1)(D)(ii), 151(d)(1), (4)(A);
Rev. Proc. 2003-85, sec. 3.16(1), 2003-2 C.B. 1184, 1188. For
purposes of sec. 6012(a)(1)(A)(i), the “basic standard deduction
applicable” to petitioner for his taxable year 2004 is $4,850.
See secs. 6012(a)(1)(D)(i), 63(c)(2), (4); Rev. Proc. 2003-85,
sec. 3.10(1), 2003-2 C.B. at 1188.
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Petitioner does not claim that he sought any professional
advice with respect to whether the 2004 commissions are
includible in his gross income for his taxable year 2004. Nor
does he claim that he sought any such advice with respect to
whether he was exempt under section 6012(a)(1)(A)(i) from filing
a return for that year. Where a taxpayer does not obtain compe-
tent advice, the taxpayer’s erroneous belief that he or she was
not required to file a return does not establish reasonable cause
for failure to file timely. See Stevens Bros. Found., Inc. v.
Commissioner, 39 T.C. 93 (1962), affd. on this issue, revd. in
part, and remanded in part 324 F.2d 633 (8th Cir. 1963); Shomaker
v. Commissioner, 38 T.C. 192, 202 (1962). On the record before
us, we find that petitioner has failed to carry his burden of
establishing that his belief that he was not required to file a
return under section 6012(a)(1)(A)(i) constituted reasonable
cause for his failure to file.
On the record before us, we find that petitioner has failed
to carry his burden of establishing that his failure to file a
return for his taxable year 2004 was due to reasonable cause, and
not to willful neglect. On that record, we find that petitioner
has failed to carry his burden of establishing that he is not
liable for the addition to tax under section 6651(a)(1) that
respondent determined in the 2004 notice.
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We turn next to the addition to tax under section 6654(a).
We have found that petitioner (1) did not file a return for his
taxable year 2003, (2) did not file a return for his taxable year
2004, and (3) did not make any estimated tax payments with
respect to his taxable year 2004. On the record before us, we
find that respondent has carried respondent’s burden of produc-
tion under section 7491(c) with respect to the addition to tax
under section 6654(a).
As we understand it, it is petitioner’s position that he
qualifies for the exception under section 6654(e)(1) (small tax
exception) and that therefore he is not liable for the addition
to tax under section 6654(a).10 As pertinent here, that excep-
tion provides that no addition to tax will be imposed under
section 6654(a) for any taxable year if the tax for that year,
reduced by the credit allowable under section 31 for tax with-
held, is less than $1,000.11 Sec. 6654(e)(1). According to
petitioner, he qualifies for the small tax exception because he
has no tax for his taxable year 2004.
We have found that petitioner has failed to carry his burden
of establishing that the 2004 commissions are not includible as
nonemployee compensation in his gross income for his taxable year
10
Petitioner does not claim that he qualifies for any other
exception to the addition to tax under sec. 6654(a) that is set
forth in sec. 6654(e).
11
See supra note 8.
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2004. In addition, we have found that the financial products
companies that paid him those commissions did not withhold tax
therefrom. We have also found that petitioner has failed to
carry his burden of establishing that he is entitled to deduct
under section 162(a) for his taxable year 2004 (1) $58,529, the
amount of the 2004 commissions, or (2) any of the claimed ex-
penses that B&A showed as deductions in the 2004 S corporation
return.
On the record before us, we find that petitioner has failed
to carry his burden of establishing that for his taxable year
2004 he qualifies for the small tax exception to the addition to
tax under section 6654(a) that is set forth in section
6654(e)(1). On that record, we find that petitioner has failed
to carry his burden of establishing that he is not liable for the
addition to tax under section 6654(a).
We have considered all of the contentions and arguments of
petitioner that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
To reflect the foregoing and the concessions by respondent,
Decision will be entered
under Rule 155.