1All section references are to the Internal Revenue Code in

effect for the taxable year in issue. All Rule references are to

the Tax Court Rules of Practice and Procedure.

T.C. Memo. 1997-521

UNITED STATES TAX COURT

STEVEN R. GOINS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12212-95. November 18, 1997.

Steven R. Goins, pro se.

Edwina L. Charlemagne, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7443A(b) and Rules 180, 181, and 182.1

Respondent determined a deficiency in petitioner's Federal

income tax for the year 1989 in the amount of $1,849, an addition

to tax in the amount of $241 pursuant to section 6651(a)(1), and

an addition to tax of $58 pursuant to section 6654.
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The issues for decision are: (1) Whether petitioner had

unreported income; (2) whether petitioner failed to file a timely

Federal income tax return; and (3) whether petitioner underpaid

his estimated tax for the year.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Greensboro, North Carolina, at the time his petition was filed.

Petitioner did not file his Federal income tax return for

the taxable year 1989. 

Steven R. Goins (petitioner) is in the business of setting

tile and installing floor coverings. During 1989, petitioner was

an employee of three different floor covering companies: Marion

Tile, Inc., Brisson Flooring, Inc., and Carolina Acoustical &

Flooring, Inc. (Carolina Acoustical). Marion Tile, Inc. and

Brisson Flooring, Inc. treated petitioner as an employee, issuing

him a Form W-2 and withholding Federal income tax and Social

Security tax from his paycheck. Carolina Acoustical treated

petitioner as an independent contractor, issuing him a Form 1099

and making no tax withholdings.

In August 1990, the U.S. Department of Labor determined that

Carolina Acoustical owed four individuals back wages for a 
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6-month period in 1989. One of these individuals was petitioner,

who, it was determined, was owed $1,078.99 in overtime pay. 

Because Carolina Acoustical considered petitioner an independent

contractor and not an employee of the company, it did not agree

with the Department of Labor that petitioner was entitled to the

back wages. Carolina Acoustical did not pay petitioner any

additional money. The other three individuals, all of whom were

considered regular employees of the company, were paid back wages

in accord with the Department of Labor's determination.

Following Carolina Acoustical's denial of payment,

petitioner received a letter from the Department of Labor's Wage

and Hour Division in which petitioner was advised that because

Carolina Acoustical, d.b.a. The Tile Shop, had not agreed to pay

petitioner the $1,078.99, he would need to bring a private suit

to recover the money. The letter stated: "we can take no

further action to secure payment of this money to you". The

burden rested with petitioner to collect the back wages. 

Petitioner's Form 1099 for taxable year 1989 reported

nonemployee compensation from Carolina Acoustical in the amount

of $11,919.17. Although Carolina Acoustical made deductions from

petitioner's weekly paychecks for items such as workmen's

compensation insurance, gasoline, wage and petty cash advances,

and loan repayments, the Form 1099 indicated that no Federal

income tax had been withheld for 1989. Petitioner's Forms W-2
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from Marion Tile, Inc. and Brisson Flooring, Inc. reflected

Federal income tax withholdings in the amounts of $58 and $826.89

respectively.

Petitioner never filed a Federal income tax return for 1989. 

He contends that if Carolina Acoustical had issued him a Form W-2

instead of Form 1099, he would have filed a timely return and

paid his tax liability. He expressed concern over not receiving

a Form W-2 to Government officials at the Internal Revenue

Service (IRS), and they advised him to file a return using his

Form 1099. Despite this advice, petitioner waited for his Form

W-2, believing the Form 1099 was a mere "formality".

Upon examination, respondent determined a deficiency in

petitioner's Federal income tax of $1,849. In calculating

taxable income, respondent allowed petitioner to deduct payments

for workmen's compensation insurance, gasoline expenses, and van

rental charges as ordinary and necessary business expenses

pursuant to section 162(a). 

Respondent determined, however, that miscellaneous itemized

deductions should be limited by the 2-percent floor as prescribed

by section 67(a) and that petitioner is not entitled to deduct

loan and cash advance repayments. Respondent also imposed a

section 6651 delinquency addition to tax and a section 6654

addition to tax for failure to pay estimated tax, finding that

none of the exceptions apply. 
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OPINION

I. Employee's Liability for Federal Income Tax

Petitioner asks for relief from his tax liability on two

grounds. First, he requests that Carolina Acoustical be held

accountable for the tax on his wages because it improperly

characterized him as a nonemployee, thus failing to withhold any

tax from his paycheck. Second, he asks that we apply the

withheld back wages of Carolina Acoustical toward his tax

liability.

We address the improper characterization argument first. An

employer is required under section 3402(a) to withhold Federal

income tax from the wages of its employees. 

Section 31(a) allows an employee to take a credit for

amounts withheld by his employer and apply it to his tax due. 

The taxpayer is entitled to this credit even if the employer has

not paid the withholdings over to the Government. Sec. 1.31-

1(a), Income Tax Regs. But if the employer does not actually

withhold the tax, the employee is not entitled to a credit for

amounts which should have properly been withheld. Edwards v.

Commissioner, 39 T.C. 78, 84 (1962), affd. on this issue 323 F.2d

751 (9th Cir. 1963). The failure of an employer to withhold

income tax does not relieve the employee's obligation to pay the

tax. Church v. Commissioner, 810 F.2d 19, 20 (2d Cir. 1987).
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Even if it were assumed that Carolina Acoustical was

petitioner's employer and as such is liable for taxes it failed

to withhold from his paycheck, see sec. 3403, petitioner is also

liable for the taxes, sec. 61(a). Respondent may collect payment

from either the employee or the employer, but the employee

remains ultimately liable for his own taxes even though his

employer was obligated to withhold. In Edwards v. Commissioner,

supra at 84, this Court held as follows:

had the respondent chosen to do so, he could have

attempted to collect from the company the amount which

it was required to withhold from the settlement

payment. Respondent, however, need not do so, but may

assess the tax against the employee upon whom, in the

final analysis, the tax burden must fall. The employee

of an employer failing to properly withhold amounts for

tax is not entitled to a credit for amounts which were

never withheld from him.

Petitioner's paychecks are unambiguous as to the amounts and

purpose of each "withholding". When workmen's compensation

insurance or loan payments were deducted from his weekly wages, a

notation was made on the left side of the check that money was

being subtracted as "2.10% Wo. Comp. Ins." or deducted as a "Loan

Payment". Petitioner was notified of each deduction in this

manner, and out of the 29 paychecks received by petitioner in

1989, not one indicated a deduction for Federal income tax. 

Because the evidence reflects that no income tax was

actually withheld by Carolina Acoustical, petitioner remains

ultimately liable for his own taxes, and may not be credited with
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amounts which Carolina Acoustical failed to withhold. Church v.

Commissioner, supra.

Petitioner also contends he is entitled to a tax credit for

unpaid back wages withheld from him by Carolina Acoustical. The

company's accountant, John L. Tilly, testified that Carolina

Acoustical owed four workers overtime back wages but the company

only paid the three individuals whom it considered regular

employees. Petitioner did not receive his overtime pay even

though he was subsequently determined to have employee status by

the IRS. 

Petitioner may indeed be entitled to additional income from

Carolina Acoustical, but that is an issue between him and the

company. We cannot require the IRS to collect petitioner's

income from Carolina Acoustical and apply it toward his tax

liability. In effect, that would be asking respondent to enforce

petitioner's private right of action against the company in lieu

of collecting the taxes from petitioner directly. 

Petitioner has come to court with the burden of proving

respondent's determinations are erroneous. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). He has not met this burden. 

Petitioner did not prove that respondent's determination that he

had unreported income for 1989 is in error.

As far as petitioner's deductions are concerned, respondent

concedes that petitioner is entitled to certain deductions as
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employee business expenses, such as workmen's compensation

insurance payments, and gasoline and van rental expenses. These

deductions are, of course, allowable only to the extent they

exceed 2 percent of petitioner's adjusted gross income. Sec.

67(a). Respondent asserts, however, that petitioner is also

attempting to characterize loan and cash advance repayments as

allowable employee business expenses.

Deductions are strictly a matter of legislative grace, and

petitioner bears the burden of proving his entitlement to any

deductions claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).

Petitioner has presented no evidence that amounts listed as

"loan payments" are deductible as employee business expenses. 

Respondent's determinations as to petitioner's employee business

expense deductions are therefore sustained.

II. Section 6651 Addition to Tax

Section 6651(a)(1) imposes a 5-percent addition to tax each

month for failure to file a tax return. The addition is not to

exceed 25 percent in the aggregate. The statute provides a

reasonable cause exception where the taxpayer can prove the

failure to file was not due to willful neglect. Sec. 6651(a)(1).

Petitioner testified that he did not file a tax return for

1989 because his Form 1099 from Carolina Acoustical designated
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2Respondent has taken into account the $884.89 withheld by

Marion Tile, Inc. and Brisson Flooring, Inc. in computing the

(continued...)

him as a nonemployee instead of an employee. He was confused as

to why Carolina Acoustical did not issue him a Form W-2 when he

worked for the company. 

We do not find petitioner's testimony regarding his failure

to file persuasive. Petitioner received Forms W-2 from both

Marion Tile, Inc. and Brisson Flooring, Inc., which together paid

petitioner almost $5,500 in income. At the very least,

petitioner knew this $5,500 was reportable income. Furthermore,

petitioner was advised by officials at the IRS that he was to

file his return using the Form 1099. Petitioner has failed to

show he had reasonable cause for his failure to file a Federal

income tax return for 1989, and is liable for the section

6651(a)(1) addition to tax as determined by respondent.

III. Section 6654 Addition to Tax

Section 6654 provides for an addition to tax when there is

an underpayment of estimated tax. This addition to tax is

mandatory and automatic, subject to certain exceptions provided

by section 6654(e). Grosshandler v. Commissioner, 75 T.C. 1

(1980). Petitioner failed to offer any evidence that he fits

within any of the listed exceptions. Respondent's determination

that petitioner is liable for the section 6654 addition to tax is

sustained.2
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2(...continued)

sec. 6654 addition to tax. Although these withheld wages do not

reduce the amount of his deficiency, respondent will apply this

amount toward payment of the deficiency. See secs. 6211, 31(a);

sec. 301.6211-1, Proced. & Admin. Regs.

To reflect the foregoing,

Decision will be entered

under Rule 155.