T.C. Memo. 2009-302
UNITED STATES TAX COURT
GREGORY JAMES ROBERTSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15372-08. Filed December 23, 2009.
Gregory James Robertson, pro se.
Fred E. Green, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined deficiencies of $12,701
and $23,306 in petitioner’s Federal income taxes for 2005 and
2006, respectively. Respondent also determined that petitioner
is liable for an accuracy-related penalty of $4,154.20 for 2006
under section 6662(a). All section references are to the
Internal Revenue Code, and all Rule references are to the Tax
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Court Rules of Practice and Procedure. After concessions, the
issues for decision are whether petitioner had unreported gross
receipts, whether he is entitled to business deductions and
capital losses not allowed by respondent, and whether he is
liable for the section 6662(a) penalty.
FINDINGS OF FACT
Petitioner is a Canadian citizen who resided in Nevada at
the time he filed his petition. During 2005 and 2006, he was
employed as an electrician for Wynn Resorts.
On his Federal income tax returns for 2005 and 2006,
petitioner claimed on Schedules C, Profit or Loss From Business,
losses from advertising businesses that offset his wages and
other items of reported income. The largest items of expense
included in the claimed losses were “commissions and fees” of
$64,111 for 2005 and $92,166 for 2006. Petitioner also claimed a
$25,000 capital loss in 2005, deducting $3,000 relating to that
loss in 2005 and a carryover loss to 2006.
The business losses petitioner claimed related to three
activities. Two of the activities, Universal Advertising Network
and Motor Zoo, Inc., were engaged in telemarketing. The third,
West Coast Motoring, was primarily engaged in the business of
selling automobile rims. Petitioner’s involvement with the
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businesses lasted for less than 2 months in 2005 with respect to
Universal Advertising Network and West Coast Motoring and for
approximately 5 months from November 2005 to April 2006 with
respect to Motor Zoo, Inc.
The Internal Revenue Service conducted a bank deposits
analysis of various bank accounts maintained by petitioner and
determined that petitioner had unreported gross receipts from his
business activities. Certain expenses substantiated by
petitioner were allowed, but unsubstantiated expenses were
disallowed. Although petitioner claimed to have documentary
evidence substantiating the expenses and losses, he failed to
produce any such evidence before or during trial.
OPINION
Petitioner testified at trial about his business activities
during late 2005 and early 2006. He claims that he was forced to
abandon them and that he lost his investments in them (allegedly
$25,000 in West Coast Motoring and $10,000 in Motor Zoo, Inc.)
because of various misrepresentations and misconduct by his
associates in the businesses. He testified that most of the
expenditures were in cash, but some were “probably” checks. He
acknowledged that he had not shown the Internal Revenue Service
any records related to the commissions claimed on his tax
returns.
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Petitioner’s testimony was rambling and did not address
specific bank deposits or explain the disallowed expenses.
Although he called a witness with respect to the West Coast
Motoring activity, that witness did not provide any evidence that
would help determine petitioner’s taxable income or deductible
expenses. The examining revenue agent testified that petitioner
failed to produce any substantiation for the disallowed
deductions.
At the conclusion of trial, the Court ordered seriatim
briefs, with respondent filing the first brief, in the hope that
petitioner would focus on the issues in this case. Petitioner
failed to file an answering brief or to respond to an order to
show cause as to why the Court should not conclude that he has
abandoned this case. It appears that he may have returned to his
native Canada, and he has not notified the Court of his current
address. See Rule 21(b)(4).
The principles applicable to this case are well established
and are set out in respondent’s brief. They are:
1. The bank deposits method is appropriate to reconstruct
income when a taxpayer fails to maintain or produce adequate
records, and the taxpayer has the burden of showing that the
reconstruction of his income is incorrect. DiLeo v.
Commissioner, 96 T.C. 858, 881 (1991), affd. 959 F.2d 16 (2d Cir.
1992), and cases cited therein.
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2. The taxpayer has the burden of proving that he is
entitled to deductions. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992).
3. Although respondent has the burden of production with
respect to the penalty under section 6662(a), petitioner has the
ultimate burden of proof that he is not liable for the penalty.
Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 449 (2001).
The evidence that petitioner claimed commissions and fees of
$92,166 without any substantiation satisfies respondent’s burden
of production.
Petitioner’s failure to file a brief and his apparent
abandonment of his case may indicate that he recognizes that his
failure to present reliable evidence is fatal and that respondent
will prevail under the applicable law. See Calcutt v.
Commissioner, 84 T.C. 716, 721-722 (1985). Under the
circumstances, we do not believe that any further elaboration is
necessary.
Decision will be entered
for respondent.