T.C. Summary Opinion 2010-29
UNITED STATES TAX COURT
DAVID PAUL MORGAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24533-08S. Filed March 10, 2010.
David Paul Morgan, pro se.
Michael T. Shelton, 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,
- 2 -
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
For 2006 respondent determined a deficiency of $3,899 in
petitioner’s Federal income tax. The issue for decision is
whether petitioner failed to report nonemployee compensation for
2006.
Background
Some of the facts have been stipulated1 and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. When petitioner filed his
petition, he resided in Illinois.
Petitioner is a subcontractor for Market Plan Consultants,
Inc. (MPC). MPC is run by petitioner’s long-time friend and
colleague. MPC paid petitioner for work he performed for MPC’s
clients. MPC issued multiple checks to compensate petitioner for
his work in 2006, amounting to $48,987. MPC reported this amount
to the Internal Revenue Service (IRS) on a Form 1099-MISC,
Miscellaneous Income. Petitioner reported only $32,000 as
nonemployee compensation on his return.
On July 7, 2008, respondent issued a notice of deficiency to
petitioner determining a deficiency of $3,899 for the year 2006.
This deficiency is based on $17 of unreported interest and
1
Petitioner stipulated that he failed to report $17 in
interest income for 2006.
- 3 -
$16,987 of unreported nonemployee compensation.2 On the basis of
this larger taxable income of $49,004, respondent increased
petitioner’s self-employment tax deduction, reduced the medical
expense deduction, and reduced his earned income credit (EIC) to
zero.
Petitioner does not dispute the total amount of the
compensation, but he does dispute that the final payment of
$16,987 was received in 2006. Petitioner concedes that the check
bore a December 2006 date but contends that he did not, and
agreed not to, cash the check immediately.
Discussion
I. Burden of Proof
Generally, the Commissioner’s determinations 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 6201(d), the burden of production may shift to
2
Petitioner testified that he also did not include the
$16,987 as income on his 2007 income tax return.
- 4 -
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 cooperated 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. Id. Petitioner has not disputed the amount of the
check, has not provided any evidence that he did not receive the
check in 2006, has not sought correction of the Form 1099-MISC,
and concedes that the check bore a December 2006 date. We find,
therefore, that there is no reasonable dispute which would shift
the burden to respondent.
II. Unreported Income
Taxpayers are required, under section 61(a), to include in
gross income “all income from whatever source derived” unless any
income has been specifically excepted from inclusion. See
Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955)
(Congress’ intent was to tax income unless specifically
excluded). Exclusions from gross income must be
narrowly construed. Commissioner v. Schleier, 515 U.S. 323, 328
(1995) (citing United States v. Burke, 504 U.S. 229, 233 (1992)).
For many years this Court has favored and followed the
cash-equivalent-upon-receipt rule enunciated in Kahler v.
- 5 -
Commissioner, 18 T.C. 31, 33-35 (1952), holding that a cash basis
taxpayer realized income in 1946 from a check dated and received
on December 31, 1946, but not cashed until January 2, 1947. In
that and similar situations, the date of payment has been related
back to the date of receipt. See Bright v. United States, 926
F.2d 383, 385-387 (5th Cir. 1991); Estate of Kamm v.
Commissioner, 349 F.2d 953, 955 (3d Cir. 1965), affg. T.C. Memo.
1963-344; Rosser v. Commissioner, T.C. Memo. 2010-6; Stephens v.
Commissioner, T.C. Memo. 1956-284; see also sec. 1.451-2, Income
Tax Regs.
In Fischer v. Commissioner, 14 T.C. 792 (1950), we held that
a check delivered to the taxpayer on December 31, 1942, which was
not deposited until 1943, was not income in 1942 but in 1943,
since the check was subject to a substantial restriction. At the
time of delivery of the check, there was an oral agreement
between the drawer and the taxpayer that the latter would hold
the check for a few days before cashing it since the drawer was
short of money in the bank. Such a situation is distinguishable
from that in the instant case.
Petitioner provided no evidence beyond his own testimony of
the purported agreement with MPC not to cash the check. He did
not call his long-time friend and colleague or any other person
as a witness to corroborate his testimony about the purported
agreement. Petitioner agreed that there was no reason to believe
- 6 -
the check would not be honored. Petitioner stated that if MPC’s
client had failed to pay MPC, he would not have cashed the check
at all and instead would have claimed a business loss in order to
preserve his relationship with his friend, the owner of MPC.
Considering that petitioner failed to report the disputed income
even in the subsequent year, the Court does not accept his
uncorroborated, self-serving explanation. See Urban Redev. Corp.
v. Commissioner, 294 F.2d 328, 332 (4th Cir. 1961) (the Court may
reject a taxpayer’s uncorroborated testimony), affg. 34 T.C. 845
(1960); Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
In conclusion, the Court finds that petitioner has not shown
that there was an agreement not to cash the check in 2006 even
though the check was received in 2006. Accordingly, petitioner
received $16,987 in unreported nonemployee compensation in 2006,
and respondent’s determinations are sustained.
Other arguments made by the parties and not discussed herein
were considered and rejected as irrelevant, without merit, and/or
moot.
To reflect the foregoing,
Decision will be entered
for respondent.