Filed: Apr. 29, 2003
Latest Update: Feb. 21, 2020
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS April 28, 2003 FOR THE FIFTH CIRCUIT Charles R. Fulbruge III _ Clerk Summary Calendar No. 02-60928 _ WESLEY W. BURNETT AND PATSIE R. BURNETT, Petitioners-Appellants, versus COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. _ Appeal from a Decision of the United States Tax Court Docket No. 3265-01 _ Before JONES, STEWART and DENNIS, Circuit Judges. PER CURIAM:* Husband and wife Wesley W. Burnett and Patsie
Summary: United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS April 28, 2003 FOR THE FIFTH CIRCUIT Charles R. Fulbruge III _ Clerk Summary Calendar No. 02-60928 _ WESLEY W. BURNETT AND PATSIE R. BURNETT, Petitioners-Appellants, versus COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. _ Appeal from a Decision of the United States Tax Court Docket No. 3265-01 _ Before JONES, STEWART and DENNIS, Circuit Judges. PER CURIAM:* Husband and wife Wesley W. Burnett and Patsie R..
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United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS April 28, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
_______________________ Clerk
Summary Calendar
No. 02-60928
_______________________
WESLEY W. BURNETT AND PATSIE R. BURNETT,
Petitioners-Appellants,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
_________________________________________________________________
Appeal from a Decision of
the United States Tax Court
Docket No. 3265-01
_________________________________________________________________
Before JONES, STEWART and DENNIS, Circuit Judges.
PER CURIAM:*
Husband and wife Wesley W. Burnett and Patsie R. Burnett
(“Burnetts”) appeal the judgment of the United States Tax Court in
favor of the Commissioner of Internal Revenue (“Commissioner”),
which issued notices of deficiency to each of them on the basis of
their failure to file federal income tax returns for 1994, 1995,
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
1996, and 1997. For the following reasons, the judgment of the Tax
Court is affirmed.
FACTS
During 1994, Mr. Burnett was employed by and received
wages from the Lubbock Independent School District (“Lubbock”).
For his work in the early part of the year he received $16,177. He
also received wages from Lubbock in September, October, and
November. The net (take-home) amount of these wages was $910,
$930, and $164, respectively. In December 1994, Mr. Burnett
repurchased a weekly newspaper, the Post Dispatch, which he had
previously sold in 1992. For each of the subsequent three subject
years, Mr. Burnett served as publisher of the paper, which he held
as a sole proprietorship.
The Burnetts have never filed a 1994, 1995, 1996, or 1997
federal income tax return. In September 1997, the Commissioner
requested a meeting with Mr. Burnett to discuss his federal income
tax liability for 1993 through 1996. Though he initially agreed to
speak with the Commissioner, he subsequently broke the date,
declaring that he was “not one made liable for any tax as defined
by the Internal Revenue Code.” In April 1998 the Commissioner
contacted Mrs. Burnett, who also refused to cooperate.
In December 2000, the Commissioner issued notices of
deficiency to the Burnetts for 1994, 1995, 1996, and 1997. The
Commissioner calculated the Burnetts’ tax deficiency for those
2
years in the following manner. On the basis of information
obtained via a summons issued to the Lubbock Independent School
District, the Commissioner listed $19,913 as taxable wage income
for 1994. Following a process described in great detail in the Tax
Court’s opinion, the Commissioner listed $85,550 as taxable
self-employment income for each of the other three years.
STANDARD OF REVIEW
This court reviews the Tax Court’s factual findings under
the clearly erroneous standard of review. Webb v. Commissioner,
394 F.2d 366, 372 (5th Cir. 1968). Legal conclusions are reviewed
de novo.
DISCUSSION
I. The Tax Court did not err in holding, as a matter of law, that
the Internal Revenue Code does not require the Commissioner to
prepare and execute a tax return before submitting a notice of
deficiency.
The Burnetts argue that the Commissioner’s submission of
a notice of deficiency must be preceded by the filing of a tax
return. In the case of taxpayers who file their returns
voluntarily, the Commissioner may submit a notice of deficiency
without further ado. However, before submitting deficiency notices
to non-filers, the Burnetts contend that the Commissioner must
first prepare and subscribe a substitute return.
In support of this argument, the Burnetts present a
lengthy and ingenious reading of the text and legislative history
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of 26 U.S.C. §§ 6020(b) & 6211, the details of which this court
need not repeat.
The Burnett’s argument was long ago rejected by this
court. Clark v. Campbell, 501 F.2d 108, 117 (5th Cir. 1974) (“the
Service may determine a deficiency in the absence of a return”).
We are bound by the previous circuit precedent, which in any event
accords with that of most of our sister circuits. See, e.g.,
Geiselman v. United States,
961 F.2d 1, 4-5 (1st Cir. 1992); Schiff
v. United States,
919 F.2d 830, 832-33 (2d Cir. 1990); United
States v. Silkman,
220 F.3d 935, 937 (8th Cir. 2000); Roat v.
Commissioner,
847 F.2d 1379, 1381 (9th Cir. 1988). See also Lainge
v. United States,
423 U.S. 161, 174 (1976) (“Where there has been
no tax return filed, the deficiency is the amount of tax due.”).
II. The Tax Court did not clearly err in finding, as a matter of
fact, that the Commissioner had failed to meet its burden of
proof.
The Burnetts argue that the Tax Court clearly erred in
finding that the Commissioner failed to meet its burden of proof,
because they have alleged that it “is crystal clear that the
Commissioner’s determination is arbitrary and excessive.” In
support of this argument, the Burnetts present a number of cases —
from this circuit, our sister circuits, and the Supreme Court —
establishing the proposition, they claim, that a petitioner’s
declaration that the Commissioner’s gross income determination is
“arbitrary and excessive” shifts the burden of proof to the
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Commissioner. The Burnetts’ claim must fail, as the cases they
cite do not support this proposition.
Established law regarding the burden of proof in tax
deficiency cases holds that the Commissioner’s assessment is
presumed correct and that the taxpayer has the burden of disproving
the Commissioner’s estimation. Helvering v. Taylor, 293 U.S. 507,
515 (1935) (“The burden of proof shall be upon the petitioner”);
see also United States v. Janis,
428 U.S. 433, 440-41 (1976); Bull
v. United States,
295 U.S. 247, 259-60 (1935). With this
proposition the Burnetts do not appear to have any quarrel.
It is also established that a taxpayer satisfies this
burden of proof by demonstrating that the Commissioner’s
determination of gross income was “arbitrary and excessive.”
Taylor, 293 U.S. at 515 (when “the taxpayer’s evidence shows the
Commissioner’s determination to be arbitrary and excessive,” he
need not pay the sum which “he does not owe”). With this, we
think, the Burnetts are also in agreement.
Where they err, however, is in their assessment of what
quantity of evidence suffices to rebut the Commissioner’s
estimation. The Burnetts appear to argue that their mere assertion
that the assessment was “arbitrary and excessive” suffices, in all
cases, to defeat the Commissioner’s action. This is error, though
perhaps understandable, because in the Supreme Court’s most recent
pronouncement on this issue, Janis, 428 U.S. 433, the Court did say
that the taxpayer’s “assertion” was sufficient. The Court did so,
5
however, not because it wished to alter the general balance between
taxpayers and the government regarding the burden of proof in tax
deficiency cases, but, rather, because without a certain piece of
evidence at issue in the case (it had been suppressed under the
Exclusionary Rule), there was no foundation whatsoever for the
Commissioner’s assessment. The Court nevertheless clearly affirmed
the general rule:
In the usual situation . . . the District Court then
could not properly grant judgment for the respondent on
either aspect of the suit. But the present case may well
not be the usual situation. What we have is a ‘naked’
assessment without any foundation whatsoever if what was
seized by the Los Angeles police cannot be used in the
formulation of the assessment.
Id. at 441. The general rule has been sustained in this court’s
various treatments of the question, see e.g., Carson v. United
States,
560 F.2d 693, 696-98 (5th Cir. 1977), and Portillo v.
Commissioner,
932 F.2d 1128, 1133 (5th Cir. 1991), and the
exceptional character of Janis was noted in Sealy Power, Ltd. v.
Commissioner,
46 F.3d 382, 386 n.9 (5th Cir. 1995). It is, in
short, error to ascribe any legal weight to the following
statement: “The Burnetts assert that it is crystal clear that the
Commissioner’s determination is arbitrary and excessive.” The law
is, rather, that the taxpayer must show, by a preponderance of the
evidence, that the Commissioner’s assessment was incorrect.
That being said, did the Tax Court clearly err in
concluding that the Burnetts had failed to demonstrate, by a
preponderance of the evidence, that the Commissioner’s assessment
6
of deficiency was incorrect? Our review of the arguments and
evidence leads to the conclusion that the Tax Court did not err —
clearly or otherwise.
According to the Burnetts, the Tax Court’s first error
was finding that Mr. Burnet’s 1994 wage income from the Lubbock
Independent School District was $19,913 rather than $16,177. The
Commissioner claims to have derived the larger figure from
information provided to it by the Lubbock Independent School
District; Mr. Burnet claims that the smaller figure is the accurate
one. Upon a review of the trial exhibits and transcript,
especially Mr. Burnet’s examination of the agent who prepared the
deficiency assessment, there is insufficient evidence in the record
for this court to conclude that the Tax Court’s assessment of the
evidence before it was clearly erroneous.
The Tax Court’s second alleged error was the attribution
of newspaper income to Mr. Burnet for 1995, 1996, and 1997. The
Burnetts raise multiple objections to the Commissioner’s methods of
calculating this income, however, the Commissioner’s
impressionistic but fact-based analysis was far superior to
anything that they deigned to present to the Tax Court. As the Tax
Court correctly notes, “Congress has given [the Commissioner] broad
discretion to use any method that he believes clearly reflects
income when he is forced to reconstruct the taxpayer’s income.”
T.C. Memo. 2002-181 at 18 (citing Estate of Bernstein v.
Commissioner, T.C. Memo. 1956-260, aff’d, 267 F.2d 879 (5th Cir.
7
1959)). On the basis of the Burnetts’ tax returns from 1992, when
they were in possession of the Post Dispatch, the Commissioner knew
that it was an income-generating enterprise. On the basis of the
figure for that return, as well as publicly available information
concerning the newspaper’s circulation and advertising rates, the
Commissioner arrived at a figure that was, at the very least,
plausibly correct. Lacking contrary evidence from the Burnetts,
the Tax Court cannot be said to have clearly erred in confirming
the Commissioner’s assessment.
III. The Tax Court did not err in holding that the Commissioner
properly imposed penalties against the Burnetts.
The Burnetts argue that, because the deficiency notices
at issue in this appeal are invalid, the Tax Court was without
subject matter jurisdiction to impose penalties against them.
Because the deficiency notices are indeed valid, the argument must
fail.
Judgment AFFIRMED.
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