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,
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1Petitioner stipulated that he failed to report $17 in

interest income for 2006.

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
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2Petitioner testified that he also did not include the

$16,987 as income on his 2007 income tax return.

$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
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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.
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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
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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.