T.C. Summary Opinion 2009-152
UNITED STATES TAX COURT
JOHN H. WONG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7090-08S. Filed October 5, 2009.
John H. Wong, pro se.
Halvor R. Melom, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed. Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
and this opinion shall not be treated as precedent for any other
case. Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice
and Procedure.
For 2005 respondent determined a $1,700 deficiency in
petitioner’s Federal income tax resulting from unreported income.
After concessions by petitioner,1 the sole issue for decision is
whether petitioner failed to report $6,812 in income.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. When the petition was
filed, petitioner resided in California.
Petitioner timely filed his Federal income tax return for
2005 and subsequently amended it. His amended return reported
wage income of $150,350,2 taxable interest of $1,617, ordinary
dividends of $397, and taxable refunds of State and local taxes
of $6,092. Petitioner did not report any other income for 2005.
1
Petitioner conceded that he received and failed to report
(1) $212 in taxable dividends from Charles Schwab & Co.; (2) $16
in capital gains on Schedule D, Capital Gains and Losses, from
the Vanguard Group; and (3) $2 in taxable dividends from the
Vanguard Group. He also conceded that he overreported his tax
withholdings on Form W-2, Wage and Tax Statement, by $13.
Petitioner presented no evidence and made no argument with
respect to $661 of qualified dividends; the Court deems this
issue conceded. See Money v. Commissioner, 89 T.C. 46, 48
(1987); Stutsman v. Commissioner, T.C. Memo. 1961-109.
2
Petitioner’s pay statements show earnings of salary and
additional amounts. As listed on petitioner’s pay statements,
one of the additional amounts is “restricted stock release”.
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On December 17, 2007, respondent issued a notice of
deficiency using third-party-payor information. Specifically,
respondent determined that petitioner received and failed to
report $6,812, as reported by E*Trade on a Form 1099-B, Proceeds
From Broker and Barter Exchange Transactions (Form 1099).3
During 2005 petitioner was employed by Providian Bancorp
Services (Providian), and he held restricted Providian stock.
Because he was a restricted shareholder and an employee,
petitioner’s pay statements included amounts for “restricted
stock release” (i.e., income resulting from the expiration or
termination of restrictions on petitioner’s restricted stock).
In 2005 Providian merged with Washington Mutual. As part of
the merger, shareholders of Providian exchanged all of their
securities4 for cash and securities in the successor corporation.
Before the merger, Providian notified petitioner that all of his
restricted stock and options, if any, would fully vest at the
merger’s closing, with shares exchanged for cash and securities.
Providian specified that the cash component, net of withholding
taxes, would be placed in petitioner’s E*Trade brokerage account
and that Providian would report the withheld tax on petitioner’s
3
Because respondent consistently rounded down the amounts
reported on the Form 1099, the amounts in dispute are slightly
less than those reported on the Forms 1099.
4
The term “securities” included stock or options of the
entities.
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Form W-2.5 For additional questions regarding the tax
consequences of the merger transactions, Providian referred
petitioner to the prospectus sent to shareholders before the
August 31, 2005, special meeting of stockholders. Providian did
not specify whether it would report the income resulting from the
cash received on petitioner’s Form W-2. Providian merged with
Washington Mutual, and petitioner’s restricted stock vested in
the first week of October 2005.
As a result of the merger, petitioner received $6,814.27,
which Providian deposited in petitioner’s E*Trade brokerage
account, less taxes withheld of $1,907.98. Petitioner’s pay
statements also reflected an increase in his restricted stock
release from $5,562.95 to $27,721.75.
Petitioner received a Form 1099 from E*Trade, showing that
he received cash of $6,814.27 in the merger. The Form 1099
instructed petitioner to report the amount on a Schedule D (i.e.,
as income). In a detailed analysis of petitioner’s brokerage
account provided by E*Trade, E*Trade noted that Providian
reported the withheld taxes on petitioner’s Form W-2; however,
E*Trade did not specify whether Providian reported the income on
petitioner’s Form W-2.
5
Neither Providian nor E*Trade specified whether the
withheld taxes include Federal, State, and/or local taxes.
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Discussion
Generally, the Commissioner’s determinations of unreported
income in a notice of deficiency are presumed correct, and the
taxpayer has the burden of proving that those determinations are
erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933). In certain circumstances, however, section
7491(a)(1) places the burden of proof on the Commissioner.
Petitioner has not alleged that section 7491 is applicable, nor
has he established compliance with the requirements of section
7491(a)(2)(A). Therefore, the burden of proof does not shift to
respondent under section 7491(a).
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 a deficiency determination. If a
taxpayer asserts a “reasonable dispute” with respect to any item
of income reported on a third-party information return and he has
fully cooperated6 with the Commissioner, the Commissioner will
have the burden of producing reasonable and probative information
concerning the item of income in addition to the information
return.
In Dennis v. Commissioner, T.C. Memo. 1997-275, the Court
found that the taxpayer failed to allege a reasonable dispute as
6
There is no evidence that petitioner has failed to fully
cooperate, and respondent does not allege petitioner failed to
fully cooperate.
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to any item of income on a Form 1099 because the taxpayer tacitly
admitted to receiving the income and failed to present evidence
demonstrating that the income reported on the Form 1099 was not
attributable to him. Because the taxpayer failed to produce
evidence or offer an explanation as to why he could not produce
it, the Court found that the taxpayer failed to assert a
reasonable dispute as to the income reported on the Form 1099,
pursuant to section 6201(d).
Likewise, in McQuatters v. Commissioner, T.C. Memo. 1998-88,
the taxpayer acknowledged that a portion of nonemployee
compensation reported on a Form 1099 was for payments made to him
as an independent dealer of merchandise for Masterguard. But the
taxpayer argued that a portion of the amount reported on the Form
1099 could have resulted from merchandise refunds and because the
Commissioner failed to determine what portion was due to
merchandise refunds, the Form 1099 was invalid. Absent credible
evidence that the Form 1099 was incorrect as to amount, the Court
concluded that the taxpayer’s testimony was consistent with the
Commissioner’s determinations and that the taxpayer had failed to
raise a reasonable dispute as to any item of income reported on
the Form 1099.
Petitioner stipulated the Form 1099, both as to its accuracy
and to his receipt of $6,814.27 as reported by E*Trade.
Petitioner did not assert that the issuance of the Form 1099 was
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erroneous or fraudulent. Rather, petitioner alleges double
reporting; i.e., that E*Trade reported the income and that
Providian reported the same income on his Form W-2. As in Dennis
v. Commissioner, supra, and McQuatters v. Commissioner, supra,
petitioner admits he received the Form 1099 and the corresponding
income and does not deny that it was taxable as income to him
upon receipt. Furthermore, petitioner failed to present any
credible evidence demonstrating that Providian reported the
income on his Form W-2. Because petitioner failed to raise a
reasonable dispute as to any item of income reported on an
information return, the Court finds that the burden of production
does not shift to respondent.
Petitioner disputes that he was required to report the
income on the Form 1099 separate from wages reported on his Form
W-2 because he believes Providian reported the income on his Form
W-2. In support of this assertion, petitioner presented
testimony and pay statements demonstrating that between September
30 and October 15, 2005, during the time his shares vested, the
value of restricted stock release reported on his earnings
statement increased from $5,562.95 to $27,721.75. Petitioner
believes this increase is due in part to the cash received in the
merger, with the balance resulting from the vesting of his
remaining Providian shares before they were exchanged for
Washington Mutual shares. Petitioner testified further that
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E*Trade told him that “that amount that they had awarded, the
$6,000, * * * was part of that total package.” While not
entirely clear, it seems petitioner interpreted E*Trade’s
correspondence to mean that Providian included this income on his
Form W-2 and that he was not required to separately report this
income. Petitioner did not produce additional records or
documents demonstrating that Providian reported this income on
his Form W-2.
Petitioner alleged that he was unable to obtain a detailed
analysis of his Form W-2 as reported by Providian, because
neither Providian nor Washington Mutual existed as operating
companies at the time of trial.
Petitioner, however, could have sought the records from the
successor corporation to Washington Mutual. He also could have
provided other evidence demonstrating that Providian included the
income on his Form W-2. As a shareholder of Providian and
Washington Mutual, petitioner presumably had within his control
evidence concerning the number of shares held and the fair market
value of those shares at the time of the merger. Petitioner
could have also provided his final pay statement for 2005.
Presumably, petitioner’s final pay statement for 2005 listed the
total amount of petitioner’s salary and restricted stock release.
These documents would allow petitioner to reconstruct his Form W-
2 income and might show whether Providian reported the $6,814.27
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on his Form W-2. Petitioner also could have introduced the
prospectus Providian sent to shareholders, which provided
information on the tax consequences of the merger transactions.
Petitioner failed to introduce such evidence or offer an
explanation as to why he could not produce it.
Absent credible evidence demonstrating that Providian
reported the income on petitioner’s Form W-2, the Court finds
that petitioner has failed to meet his burden of proof, and
respondent’s determination is sustained.
To reflect the foregoing,
Decision will be entered
for respondent.