Judges: "Haines, Harry A."
Attorneys: George E. Harp , for petitioner. Alisha M. Harper , for respondent.
Filed: Apr. 09, 2007
Latest Update: Dec. 05, 2020
Summary: T.C. Memo. 2007-82 UNITED STATES TAX COURT STEVEN R. OLMOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 2232-04. Filed April 9, 2007. George E. Harp, for petitioner. Alisha M. Harper, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION HAINES, Judge: Respondent determined a deficiency in petitioner’s 2001 Federal income tax of $43,886 and additions to tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754, respectively.1 The issues for decision are: (1) Whe
Summary: T.C. Memo. 2007-82 UNITED STATES TAX COURT STEVEN R. OLMOS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 2232-04. Filed April 9, 2007. George E. Harp, for petitioner. Alisha M. Harper, for respondent. MEMORANDUM FINDINGS OF FACT AND OPINION HAINES, Judge: Respondent determined a deficiency in petitioner’s 2001 Federal income tax of $43,886 and additions to tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754, respectively.1 The issues for decision are: (1) Whet..
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T.C. Memo. 2007-82
UNITED STATES TAX COURT
STEVEN R. OLMOS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2232-04. Filed April 9, 2007.
George E. Harp, for petitioner.
Alisha M. Harper, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner’s 2001 Federal income tax of $43,886 and additions to
tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754,
respectively.1 The issues for decision are: (1) Whether
1
Unless otherwise indicated, all section references are to
(continued...)
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petitioner received unreported income in the form of interest and
medical and healthcare payments in 2001; (2) whether petitioner
is liable for self-employment tax for 2001; (3) whether
petitioner is liable for an addition to tax under section
6651(a)(1) for failing to file his 2001 tax return; (4) whether
petitioner is liable for an addition to tax under section 6654(a)
for failing to make estimated tax payments with respect to his
2001 tax liability; and (5) whether petitioner is liable for a
penalty under section 6673(a)(1).
FINDINGS OF FACT
At the time he filed his petition and amended petition,
petitioner resided in Niles, Ohio.
During 2001, petitioner was a dentist with an office in La
Mesa, California. Petitioner received medical and healthcare
payments from insurance companies and other entities for services
rendered to his patients. The insurance companies and other
entities issued petitioner Forms 1099-MISC, Miscellaneous Income,
reflecting the following payments made during 2001:
1
(...continued)
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
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Payor Payment(s)
Aramco Services Co. $1,449
Blue Cross of California 37,502
Continental Casualty Co. 2,245
Delta Dental Plan of 2,034
California
Great-West Life & Annuity 2,360
Ins. Co.
Interinsurance Exchange 1,104
Nationwide Mutual Ins. Co. 951
Niagra Fire Ins. Co. 1,695
Republic Indemnity Co. 2,111
San Diego Elec. Health & 720
Welfare Trust
State Comp. Ins. Fund 2,428
Tristar Risk Management 1,823
Truck Ins. Exchange 15,740
United Healthcare Ins. Co. 4,002
Total 76,164
During 2001, petitioner also received and cashed checks totaling
$2,279 from Kaiser Permanente Medical Care Program and checks
totaling $12,827 from State Farm Mutual Automobile Insurance
Company.
Despite receiving medical and healthcare payments totaling
at least $91,270 in 2001, petitioner did not make estimated tax
payments and did not file a Federal income tax return.
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On October 31, 2003, respondent issued petitioner a notice
of deficiency for 2001. Based on information received from
third-party payors, respondent determined petitioner received
interest income of $72 from Wells Fargo and self-employment
income of $132,242 from medical and healthcare payments.2 In
addition to the medical and healthcare payments reflected above,
respondent determined petitioner also received medical and
healthcare payments from the following sources:
Payor Payment(s)
Aetna, Inc. $5,789
Aetna Life Ins. Co. 11,196
Best Life Assurance 1,000
Calfarm Ins. Co. 4,218
Federal Ins. Co. 1,300
Intercare Ins. Services 3,763
Kyocera International, Inc. 4,558
Peoria Unified School 1,975
District
Twin City Fire Ins. Co. 5,404
Total 39,203
After allowing petitioner a standard deduction, a personal
exemption, and an adjustment for self-employment tax, respondent
determined petitioner’s 2001 taxable income was $118,108.
2
These medical and healthcare payments included $1,611
from Metropolitan Life Ins. Co. On brief, respondent conceded
petitioner did not receive medical and healthcare payments from
Metropolitan Life Ins. Co.
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Respondent determined petitioner had a deficiency in tax of
$43,866 for 2001, which included self-employment tax of $13,511.
Respondent also determined petitioner was liable for additions to
tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754,
respectively.
On February 5, 2004, the Court filed petitioner’s imperfect
petition. By order dated February 9, 2004, the Court ordered
petitioner to file a proper amended petition and pay the filing
fee on or before March 25, 2004. The Court received petitioner’s
filing fee on March 29, 2004, but did not receive a proper
amended petition. By order dated June 2, 2004, the Court
extended the time to file a proper amended petition to June 30,
2004. No response to the Court’s June 2, 2004, order was
received, and on August 13, 2004, the Court dismissed
petitioner’s case for lack of jurisdiction.
On November 12, 2004, the Court filed petitioner’s motion to
vacate the order of dismissal. Petitioner attached an amended
petition to his motion. On November 12, 2004, the Court granted
petitioner’s motion, vacated the order of dismissal, and filed
petitioner’s amended petition.
A notice setting case for trial during the Court’s
Cleveland, Ohio, trial session beginning March 27, 2006, was
served on petitioner on October 21, 2005. By order dated March
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23, 2006, the Court set petitioner’s case for a date and time
certain of 10:00 a.m. EST on Friday, March 31, 2006.
When petitioner’s case was called for trial on March 31,
2006, petitioner did not appear. Instead, George E. Harp (Mr.
Harp) appeared on petitioner’s behalf, and the Court filed Mr.
Harp’s entry of appearance. Although Mr. Harp offered no
evidence at trial regarding petitioner’s unreported income,3 Mr.
Harp objected to all but one of respondent’s exhibits. After
hearing argument on the objections, we overruled petitioner’s
objections and admitted the exhibits.
OPINION
I. Unreported Income
Section 61(a) defines gross income for purposes of
calculating taxable income as “all income from whatever source
derived”. Respondent determined petitioner received gross income
in the form of taxable interest and medical and healthcare
payments, and that petitioner failed to file a 2001 Federal
income tax return reporting these items.
3
Petitioner did introduce into evidence a letter from
respondent’s counsel outlining documents respondent intended to
use at trial. It is unclear why petitioner introduced this
letter into evidence, as it does not relate to any issue and was
not cited by petitioner on brief.
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Generally, a taxpayer bears the burden of proving the
Commissioner’s determinations incorrect.4 Rule 142(a); Welch v.
Helvering,
290 U.S. 111, 115 (1933). However, the Court of
Appeals for the Sixth Circuit, the Circuit to which appeal in
this case would lie absent stipulation otherwise,5 has held:
“The law imposes much less of a burden upon a taxpayer who is
called upon to prove a negative--that he did not receive the
income which the Commissioner claims--than it imposes upon a
taxpayer who is attempting to sustain a deduction.” Weir v.
Commissioner,
283 F.2d 675, 679 (6th Cir. 1960), revg. T.C. Memo.
1958-158; see also United States v. Walton,
909 F.2d 915, 918-919
(6th Cir. 1990); United States v. Besase,
623 F.2d 463, 465 (6th
Cir. 1980); Richardson v. Commissioner, T.C. Memo. 2006-69. In
cases involving unreported income, the Commissioner bears the
initial burden of establishing “at least a ‘minimal’ factual
predicate or foundation of substantive evidence linking the
4
Petitioner does not argue that sec. 7491(a) operates to
shift the burden of proof to respondent. Even if petitioner had
so argued, the burden of proof would not shift under sec. 7491(a)
because petitioner has not shown he maintained any records, nor
has he cooperated with the reasonable requests of respondent
during the administrative proceedings or in preparation for
trial.
5
While petitioner apparently resided in California during
2001, he resided in Niles, Ohio, when he filed his petition and
amended petition. Sec. 7482(b)(1)(A) provides that reviewable
decisions of the Tax Court are appealable to the Circuit in which
the taxpayer resides at the time the petition was filed.
Therefore, this case is appealable to the Court of Appeals for
the Sixth Circuit.
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taxpayer to income-generating activity or to the receipt of
funds.” Richardson v.
Commissioner, supra (citing United States
v. Walton, supra at 918-919). Once the Commissioner meets his
initial burden of production, the taxpayers bear the “burden of
producing credible evidence that they did not earn the taxable
income attributed to them or of presenting an argument that the
IRS deficiency calculations were not grounded on a minimal
evidentiary foundation.” United States v. Walton, supra at 919.
To satisfy his initial burden of production, respondent
introduced into evidence Forms 1099-Misc issued to petitioner by
14 third-party payors. Respondent also introduced into evidence
checks issued to and cashed by petitioner from two third-party
payors. Respondent introduced the Forms 1099-Misc as business
records through written declarations under rules 803(6) and
902(11) of the Federal Rules of Evidence and introduced the
checks as self-authenticating commercial paper under rule 902(9)
of the Federal Rules of Evidence.6
6
Petitioner argued on brief that respondent had the burden
of proof regarding the unreported income adjustments and
respondent did not satisfy that burden because the business
records and checks offered at trial were inadmissible. As
discussed elsewhere in this opinion, respondent bears only the
initial burden of production and not the ultimate burden of
proof. Respondent has satisfied his initial burden of production
by introducing the business records and checks. The business
records in question were kept in the regular course of business
and were properly authenticated in certifications submitted under
Fed. R. Evid. 803(6) and 902(11), and the checks are self-
authenticating commercial paper under Fed. R. Evid. 902(9).
(continued...)
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The business records and checks respondent introduced
establish that petitioner received income from medical and
healthcare payments during 2001. While this evidence covers only
16 of the 25 third-party payors from which respondent determined
petitioner received income, it establishes a minimal factual
predicate or foundation of substantive evidence linking the
taxpayer to income-generating activity. We conclude that
respondent laid the requisite foundation for the contested
unreported income from medical and healthcare payments and that
petitioner bears the burden of proving respondent’s determination
incorrect.
Respondent did not, however, introduce any evidence
establishing that petitioner received interest income during
2001. Because respondent has not laid the requisite foundation
in this regard, we find that the alleged interest income of $72
is not included in petitioner’s gross income for 2001.
Petitioner did not attend the trial, and he did not attempt
through his counsel to introduce any evidence regarding the items
of unreported income. Therefore, we conclude that petitioner has
failed to carry his burden of proof. Respondent’s unreported
6
(...continued)
Therefore, the records and checks were properly admitted into
evidence at trial, and we do not consider petitioner’s arguments
further.
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income adjustments relating to the medical and healthcare
payments are sustained.
II. Self-Employment Tax
Section 1401 imposes a tax on the self-employment income of
individuals. Self-employment income means the net earnings from
self-employment derived by an individual. Sec. 1402(b).
Respondent determined the medical and healthcare payments
received by petitioner constituted self-employment income and
consequently petitioner was liable for self-employment tax.
Petitioner bears the burden of proving respondent’s determination
incorrect. See Rule 142(a); Welch v. Helvering, supra at 115.
Petitioner argues he is not liable for self-employment tax
because “Respondent has failed to establish self-employment
income”. As described above, respondent established petitioner
received income from medical and healthcare payments received for
services rendered by petitioner. Petitioner presented no
testimony or evidence regarding his liability for self-employment
tax and has failed to meet his burden of proof. Therefore, we
conclude that petitioner is liable for self-employment tax.
III. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed, unless the taxpayer can
establish that such failure is due to reasonable cause and not
willful neglect. Respondent determined petitioner is liable for
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an addition to tax under section 6651(a)(1) because he failed to
file a 2001 Federal income tax return.
Respondent bears the burden of production with respect to
petitioner’s liability for the addition to tax under section
6651(a)(1). See sec. 7491(c); Higbee v. Commissioner,
116 T.C.
438, 446-447 (2001). To meet his burden of production,
respondent must come forward with sufficient evidence indicating
it is appropriate to impose the addition to tax. See Higbee v.
Commissioner, supra at 446-447. Once respondent meets his burden
of production, petitioner bears the burden of proving he is not
liable for the additions to tax. See
id. at 447.
Respondent introduced into evidence a Form 3050,
Certification of Lack of Record, and a Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, both of which
show petitioner did not file a 2001 Federal income tax return.
On the basis of this evidence, we find that respondent has met
his burden of production.
Petitioner did not introduce any evidence to prove he had
reasonable cause for his failure to file a 2001 Federal income
tax return. Therefore, we conclude that petitioner is liable for
an addition to tax under section 6651(a)(1).
IV. Addition to Tax Under Section 6654(a)
Section 6654(a) imposes an addition to tax on an
underpayment of a required installment of individual estimated
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tax unless one of the statutory exceptions applies. Sec.
6654(a), (b), (e). Each required annual installment of estimated
tax is equal to 25 percent of the “required annual payment”,
which is equal to the lesser of (1) 90 percent of the tax shown
on the individual’s return for that year (or, if no return is
filed, 90 percent of his tax for such year), or (2) if the
individual filed a return for the immediately preceding taxable
year, 100 percent of the tax shown on that return. Sec.
6654(d)(1)(A) and (B). Respondent determined that petitioner is
liable for an addition to tax under section 6654(a) because he
made no estimated tax payments for 2001.
Respondent bears the burden of production with respect to
petitioner’s liability for the addition to tax under section
6654(a). See sec. 7491(c); Higbee v.
Commissioner, supra at 446-
447. “In order to satisfy his burden of production * * *
regarding petitioner’s liability for the section 6654 addition to
tax, respondent, at a minimum, must produce evidence necessary to
enable the Court to conclude that petitioner had a required
annual payment under section 6654(d)(1)(B).” Wheeler v.
Commissioner,
127 T.C. 200, 211 (2006).
Respondent introduced into evidence Form 3050, which shows
that petitioner did not file tax returns for 2000 or 2001.
Thus, respondent has established that, because petitioner did not
file a 2000 Federal income tax return, petitioner was required by
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section 6654(d)(1)(B) to make an annual payment during 2001 of 90
percent of the tax for 2001.7 Respondent also introduced into
evidence Form 4340, which shows that petitioner did not make the
required estimated tax payments. On the basis of this evidence,
we find that respondent has met his burden of production.
We do not find that a statutory exception to the addition to
tax under section 6654(e) applies. Therefore, we conclude that
petitioner is liable for an addition to tax under section
6654(a).
V. Penalty Under Section 6673(a)(1)
Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay the United States a penalty in an amount not to
exceed $25,000 whenever the taxpayer’s position is frivolous or
groundless or the taxpayer has instituted or pursued the
proceeding primarily for delay. At trial and on brief,
respondent asked the Court to impose a penalty under section
6673(a)(1) against petitioner due to petitioner’s failure to
cooperate, his failure to appear at trial, and his continual
delay.
Petitioner’s actions evidence an intention to delay the
proceedings, and he has failed to cooperate with respondent at
7
As
discussed supra, respondent also established that
petitioner has tax due for 2001 as the result of the medical and
healthcare payments received. The amount of tax due, and
consequently, the amount of the additions to tax, must be
determined by the parties under Rule 155.
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every level. Additionally, while petitioner did not raise
typical tax-protester arguments, petitioner’s actions and his
failure to introduce any evidence to support his claims closely
mirrors the tactics of many tax protesters. However, petitioner
was not warned until the conclusion of this case that a penalty
might be imposed under section 6673(a)(1). For this reason only,
we decline to impose a penalty under section 6673(a)(1). We
strongly admonish petitioner that if he persists in using tactics
of delay or in failing to cooperate with respondent in
proceedings hereafter, the Court will not be so favorably
inclined in the future.
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned above, we conclude that
they are moot, irrelevant, or without merit.
To reflect the foregoing,
An appropriate order
and decision will be entered
under Rule 155.