1 Section references are to the applicable versions of the

Internal Revenue Code.

T.C. Memo. 2007-1

UNITED STATES TAX COURT

RICHARD CLARKE RANDALL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24208-05. Filed January 3, 2007.

Richard Clarke Randall, pro se.

Steven I. Josephy, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge: Petitioner petitioned the Court to redetermine

a $14,643 deficiency in his 2003 Federal income tax and a $2,929

accuracy-related penalty under section 6662(a).1 Following a 

trial that was held on September 11, 2006, we must decide whether
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petitioner’s 2003 taxable income includes nonemployee

compensation not otherwise reported by him in that taxable

income. We hold that it does. We also must decide whether

petitioner is liable for the section 6662(a) accuracy-related

penalty. We hold that he is.

FINDINGS OF FACT

Some facts are stipulated and are so found. The stipulation

of facts and the accompanying exhibits are incorporated herein by

this reference. Petitioner resided in Colorado when his petition

was filed. 

In 2003, petitioner received $32,225 in nonemployee

compensation from National Quality Assurance USA Inc., $20,517 in

nonemployee compensation from Labtest International Inc., $2,250

in nonemployee compensation from Due.com Inc., $44 in interest

income from Firstbank of Arapahoe County, and $242 in taxable

dividends from The Southern Company Services, Inc. After

receiving petitioner’s 2003 Form 1040EZ, Income Tax Return for

Single and Joint Filers With No Dependents, respondent issued to

petitioner a notice of proposed changes (CP-2000). Thereafter,

petitioner filed a Form 1040X, Amended U.S. Individual Income Tax

Return, for 2003. On this amended return, petitioner reported

that his adjusted gross income for 2003 was $501; this amount

consisted of $44 of interest income and $215 and $242 in

dividends. He reported total tax of zero. Petitioner attached
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to this amended return 2003 Forms 1099-MISC, Miscellaneous

Income, from National Quality Assurance USA, Inc. and Labtest

International, Inc.; on each, petitioner had crossed out the

amounts listed in the box labeled “nonemployee compensation” and

written in “0”. He included at the bottom of each of the Forms

1099-MISC the following statement: 

This corrected Form 1099-MISC is submitted to rebut a

document known to have been submitted by the party

identified above as “PAYER” which erroneously alleges a

payment to the party identified above as the

“RECIPIENT” OF “gains, profit or income” made in the

course of a “trade or business”. Under penalties of

perjury, I declare that I have examined this statement

and to the best of my knowledge and belief, it is true,

correct, and complete.

Respondent issued to petitioner the notice of deficiency on

September 26, 2005, and petitioner timely filed a petition in

this Court. In the petition, petitioner stated the following: 

I have submitted an amended tax return (1040X) to the

IRS addressing errors in my previous tax return

(1040EZ). I have also submitted an affidavit

explaining how two “1099-MISC” forms (identified in the

“Notice CP2000”) are incorrect. One was from “National

Quality Assurance USA Inc” and the other from “Labtest

International Inc.” Both “1099-MISC” forms erroneously

allege a payment to the party identified as he [sic]

“RECIPIENT” of “gains, profit or income” made in the

course of a “trade or business”. I rebutted both of

these documents in attachments to my amended 2003 tax

return, dated September 9, 2005. My amended tax return

did not indicate any greater tax liability than my

original tax return. 

In the referenced affidavit, which was dated November 26, 2005,

petitioner stated that the Forms 1099-MISC from National Quality

Assurance USA Inc. and Labtest International Inc. “erroneously
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allege a payment to the party identified as the ‘RECIPIENT’ of

‘gains, profit or income’ made in the course of a ‘trade or

business’” and that he had “rebutted both of these documents in

attachments” to his amended 2003 return. 

OPINION

 Section 61 provides that “gross income means all income

from whatever source derived.” Gross income is an inclusive term

with broad scope, designed by Congress to “exert * * * ‘the full

measure of its taxing power’”. Commissioner v. Glenshaw Glass

Co., 348 U.S. 426, 429 (1955) (quoting Helvering v. Clifford, 309

U.S. 331, 334 (1940)). Compensation for services is enumerated

among the items of income included under section 61. Sec.

61(a)(1). 

Petitioner agrees that he has in fact received the amounts

reportedly paid to him; he simply argues that the amounts are not

taxable. Petitioner’s argument is clearly without merit, and we

hold that the amounts of nonemployee compensation received by

petitioner are includible in his taxable income for 2003. 

Respondent also determined that petitioner is liable for an

accuracy-related penalty under section 6662(a). In relevant

part, section 6662(a) and (b) imposes an accuracy-related penalty

if any portion of an underpayment is attributable to either (1)

negligence or disregard of rules or regulations or (2) any

substantial understatement of income tax. “Negligence” includes
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any failure to make a reasonable attempt to comply with the

provisions of the Internal Revenue Code. An “understatement” is

the excess of the amount of tax required to be shown on the

return for the taxable year over the amount of tax imposed which

is shown on the return, reduced by any rebate. Sec. 6662(d)(2). 

A substantial understatement of income tax exists for any taxable

year for purposes of section 6662 if the amount of the

understatement for the taxable year exceeds the greater of 10

percent of the tax required to be shown on the return for the

taxable year or $5,000. Sec. 6662(d)(1)(A). 

Respondent bears the burden of production under section

7491(c) and must come forward with sufficient evidence indicating

that it is appropriate to impose an accuracy-related penalty. 

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). Once

respondent has met this burden, the taxpayer must come forward

with persuasive evidence that the accuracy-related penalty does

not apply. Id. at 447. The taxpayer may establish, for example,

that part or all of the accuracy-related penalty is inapplicable

because it is attributable to an understatement with respect to

which the taxpayer acted with reasonable cause and in good faith. 

Sec. 6664(c)(1). Whether a taxpayer acted as such is a factual

determination, sec. 1.6664-4(b)(1), Income Tax Regs., in regard

to which the taxpayer’s effort to assess the proper tax liability

is a very important consideration. 
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Here, we conclude that respondent has met his burden of

production with respect to the accuracy-related penalty. 

Petitioner’s amended return for 2003 shows total tax due of zero. 

Thus, the deficiency in this case, which is greater than $5,000,

is a substantial understatement within the meaning of section

6662(d). In addition, the deficiency in this case is

attributable to negligence as defined in section 6662(c), as

petitioner has failed to make any reasonable attempt to comply

with the provisions of the Internal Revenue Code. In that

petitioner has introduced no evidence to support a finding of

reasonable cause, we sustain respondent’s determination as to the

accuracy-related penalty. 

To reflect the foregoing,

 Decision will be entered

for respondent.