T.C. Sum m ary Opi ni on 20 13 -8 9

UNITED STAT ES TAX COURT

PAPA BIRAMA FALL AND YACINE DIENG, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 15 29 3- 12 S. Fil edNov em be r 14 , 20 13
. Pap a Bi ram a Fal l an d Yac in e Die ng , pro ses e. St ep he n C . Hug gs an d S ha ryn M . Orteg a, fo r res po nd en t.

SUMM ARY OPINION PANUTHOS, Chi ef Sp eci al Trial Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e pe ti ti on was fi le d. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t rev ie wab le by any

ot he r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt- 2 -

fo r an y ot he r cas e. All sec ti on refe ren ces are t o the Int ern al Rev enue Co de in effe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax C ourt Rul es of Prac ti ce an d P ro cedur e, un le ss ot he rwis e in di cat ed
. Ina no ti ce o f de fic ie nc y

date d M arch 12 , 20 12 , res po nd en t d et erm in eda de fic ie nc y

inpe ti ti on ers ’ Fed eral in co m e ta x o f $3 ,85 2, a s ect io n 6 66 2( a)
accu racy-rela te d p en al ty of $1 ,12 6, an d a10 % ad di ti on al tax purs ua ntto sec ti on 72 (t) of $ 57 fortax y ear 2 00 9. Th e ad jus tm en ts inth e n ot ic e o f de fic ie nc y in cl ud ed(1) un rep orte d i nc om e o f $2 4,7 25 , (2) anom it te d re ti rem en t d is tri bu ti on 1 of $5 66 , (3) a 10 % ad di ti on al tax on anearl y di st rib ut io n p ur su an t t o s ect io n 7 2( t),
an d (4 ) anaccu racy-rela te d p en al ty pur su an t t o s ect io n 6 66 2( a).

Inth e ad jus tm en t p ag e at ta ch edto th e n ot ic e o f de fic ie nc y , th is it em is 1 de sc rib edas “ no n- em

pl oyee co m

pe ns at io n” . The ad

jus tm en t p ag e fu rth er i nc lu de s FICA t ax of $ 1,5 33 . In an ex pl an at io n p ag e und er “ Oth er Tax es --So ci al Secu rit y /M ed ic are Tax ” th e n ot ic e su gg es ts th atPap a Bi ram a Fal l (p et it io ne r) was im pr op erl y tre at edas s el f-em

pl oyed an d t ha t the em

pl oyee’s sh are o f FICA t ax at 7.6 5% wo ul d b e cre di te d t o h is So ci al Secu rit y an d M ed ic are Acc ou nt . Res po nd en t’s p retria l m em or an du m st at es th at“res po nd en t co nc ed es th at pe ti ti on er’s i nc om e fro m

Ro m anTruc ks wil l b e rep orte d a s W-2 wag es onth e Fo rm 10 40 ”. At tria l p et it io ne r ag reedth athe was an e m pl oyee; ac co rd in gl y , de sp it e so m e o f th e co nf

us io n i n t he no ti ce o f de fic ie nc y an d fi li ng s, p et it io ne r’s em pl oym en t s tatu s i s n otinis su e.- 3 -

Afte r co nc es si on s, th e is su es forde ci si on are: (1) whet he r pe ti ti on er 2
rece iv edm or e th an$1 2,0 00 of u nr ep orte d i nc om e in 20 09 ; an d (2 ) whe th er pe ti ti on ers are l iabl e fo r th e se ct io n 6 66 2( a) ac curacy-rela te d p en al ty for the 20 09 ta x year. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d t he att ach edex hi bi ts are i nc or po rat edhe rei n b y

refe ren ce. Pet it io ne rs res id edinMarylan d wh enth ei r pe ti ti on was fi le d. In20 09 Ro m anTruc ks hi redpe ti ti on er as ex ecu ti ve vi ce p res id en t. Ro m an Truc ks in di cat edina le tt er d at edFeb ru ary 23 , 20 09 (em pl oym en t l et te r), th at pe ti ti on er’s co m

pe ns at io n wo ul d i nc lu de “ a y earl y sal ary of $1 25 ,00 0 (p ay ab le
m on th ly)” andth athi s emplo ym en t wo ul d c omm en ce o n Ap ril 1, 2 00 9. Pe ti ti on er worke d fo r Ro m anTruc ks forap pr ox im at el y th ree m on th s. The Int ern al Rev enue Serv ic e rec ei ve d aFo rm 10 99 -MI SC, Mi sc el lane ou s In co m e, fro m

Ro m anTruc ks rep orti ng co m pe ns at io n o f $2 4,7 25 pa idto pe ti ti on er. Inth e p et it io n, p et it io ne rs di d n otap pe ar t o d is pu te an y of t he ad jus tm en ts 2 in th e n ot ic e o f de fic ie nc y . At tri al , ho wev er, p et it io ne rs di sp ut edm os t o f th e ad jus tm en ts an d a gr eedon ly tha t p et it io ne r ha d re cei ve d $ 12 ,00 0 o f wag e in co m e fro m Ro m anTruc ks Afric a, In c. (Ro m anTruc ks ). To the ex te ntth atpe ti ti on ers fai le d t o p res en t an y

ev id en ce o r arg um en t as to th e o m it te d re ti rem en t d is tri bu ti on an d t he 10 % ad di ti on al tax , th es e ad jus tm en ts are d eem edco nc ed ed . See Ru le 14 9( b)
.- 4 -

Pet it io ne r di d n otin cl ud e in in co m e an y co m pe ns at io n fr om

Ro m anTruc ks forth e 20 09 tax y ear. Dis cu ss io n Inge ne ral , th e Co m

m is si on er’s d et erm in at io n s etforthina no ti ce o f de fic ie nc y

is pre su m edco rrec t, an d the tax pa y er b ears th e b ur de n o f pr ov in g ot he rwis e. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). In c as es in vo lv in g u nr ep orte d i nc om e, th is Co urt h as reco gn iz edanex cep ti on to th is rul e whe re the Co m

m is si on er i nt ro du ces no subs tant iv e ev id en ce an d re li es so le ly on th e p res um

pt io n o f co rrec tn es s. Jac ks on v. Co m m is si on er, 7 3 T.C. 3 94 , 40 1 3 (1 97 9) . This ex cep ti on is li m it edan d d oe s n otap pl y wher e th e Co m

m is si on er h as pr ov id eda m in im al ev id en ti ary fo un da ti on . Petz ol dtv. Co m m is si on er, 9 2 T.C. 66 1, 6 87 -6 88 (19 89 ). Becaus e we d eci de th e fac tu al is su es inth e in st an t ca se on th e p rep on de ran ce o f th e ev id en ce, the all oc at io n o f th e b ur de n o f pr oo f is imm at eri al . See Knud se n v . Commis si on er, 1 31 T.C. 18 5, 1 89 (20 08 ).
Add it io na ll y , if a t ax pa y er as se rts a reas on ab le di sp ut e wit h re sp ectto an y 3 it em of i nc om e rep orte d o n a n i nf orm at io n re tu rnfil edwith t he Secr et ary by a th irdparty andth e ta xp ay er h as ful ly coo pe rat edwith t he Secr et ary, th e Sec ret ary sh al l h av e th e b ur de n o f pr oduc in g re as on ab le an d p ro ba ti ve in fo rm at io n co nc ern in g t he de fic ie nc y inad di ti on to th atin fo rm at io n re turn . Sec. 6 20 1( d)
. Pet it io ne rs ha ve no t as se rte d a“ reas on ab le di sp ut e” i n t hi s ca se ; the refo re, s ec. 62 01 (d ) is in ap pl ic ab le . See Parke r v. C omm is si on er, T.C. Mem o. 2 01 2- 66 ; Co ok v. Co m m is si on er, T.C. Mem o. 2 01 0- 13 7.- 5 -

1. Unr ep orte d In co m e Gro ss in co m e in cl ud es all in co m e fro m what ev er s ource d eri ve d, i nc lu di ng (b utno t l im it edto ) co m

pe ns at io n fo r se rv ic es . Sec. 6 1( a)(1 ). It i s wel l es tabl is he d th atanem

pl oyer’s fai lu re t o wi th ho ldin co m e ta x d oe s n otrel ie ve anem pl oyee fro m hi s o r he r ob li ga ti on to pa y in co m e ta x. Ch ur chv. Co m m is si on er, 8 10 F.2d 19 , 20 (2dCir . 19 87 ); C he naul t v . Comm is si on er, T.C. Mem o. 2 01 1- 56 (ho ld in g th ata th irdpa rty’ s wi th ho ld in g o bl ig at io n “ do es no t ex cu se th e ta xp ay er fro m hi s orhe r du ty to re po rt i nc om e an d p ay th e res ul ti ng tax ”); And ers on v. Co m m is si on er, T.C. Mem o. 2 00 7- 26 5. Th e Co m m is si on er m ay

co ll ectpa y

m en t fro m eit he r th e em

pl oyee orth e em

pl oyer, bu t the em

pl oyee rem ai ns ul ti m at el y li ab le forhi s o wn t ax es ev enth ou gh hi s emplo y er was ob li ga te d t o wi th ho ld
. Edwar ds v. Co m

m is si on er, 3 9 T.C. 7 8 (1 96 2) , aff’d i n p artan d re v’d i n p art , 32 3 F.2 d 7 51 , 75 2 (9 th Cir . 19 63 ). Pet it io ne r ackno wled ge d tha t h e h adwork edfor Ro m anTruc ks in20 09 for ap pr ox im at el y

th ree m on th s an d t ha t h e h adrece iv edth ree p aym en ts fro m th em in 20 09
. Pet it io ne r pr ov id edto th e Co urt a r eco ns tru ct io n o f hi s i nc om e fo r 20 09 , 4 Pet it io ne r’s te st im on y

as t o t he len gt h o f th e te rm of h is em pl oym en t was 4 va gu e an d a m

bi gu ou s. At o ne po in t h e cl ai m edth athe be ga n e m pl oym en t i n Mar ch20 09 , bu t the em

pl oym en t l et te r in di cat es Apri l 1 , 20 09 , as the fir stda te of em pl oym en t. He al so cla im edth athe ha d wo rk edforth ree m on th s b utth athe (co nt in ue d...)- 6 -

whi chwas b as edon 26 pa y pe rio ds . He con cl ud edinth e rec on st ru ct io n o f in co m e th athe ha d re cei ve d thr ee s ep arat e wir e tr an sf ers or d ep os it s fr om

Ro m anTruc ks , each for$4 ,00 0, fo r a t ot al of $ 12 ,00 0. Howev er, p et it io ne r di d n otpro vi de 5 furth er ex pl an at io n o r an y do cu m en ts supp orti ng pa ym en ts of $ 4,0 00
. Altho ug h p et it io ne r at te m pt edto reco ns tru cthi s i nc om e fo r 20 09 , hi s reco ns tru ct io n o f in co m e b as edon 26 pa y pe rio ds was i nc on si st en t wi thth e em pl oym en t l et te r fro m

Ro m anTruc ks , whi chin di cat edth athe wou ldbe pa id
m on th ly. His reco ns tru ct io n o f in co m e was als o i nc on si st en t wi th hi s o wn te st im on y . He clai m edth athe was n otpa idinApri l o r May, buthi s re co ns tru ct io n of in co m e sh owe d apay

pe rio d b eg in ni ng inApri l, wi th th e fi rs t p aym en t al le ge dl y rece iv edon Apri l 1 7, 2 00 9, a s eco ndpa ym en t re cei ve d o n M ay 13 , 20 09 , anda th irdpa ym en t re cei ve d o n M ay 26 , 20 09 . Furt he rm or e, pe ti ti on er’s (...co nt inue d) 4 co nt in ue d t o wo rk

th ere u nt il Ju ly 200 9. Inlat er t es ti m on y he in di cat edth athe le ft R om anTruc ks ’ em

pl oym en t atth e en d o f Ju ne 20 09 . The am ou ntrep orte d o n th e Fo rm 10 99 -MI SC, wh encal cu late d c on si st en t wi thth e em pl oym en t l ette r, rep res en ts a su m

forworkpe rfo rm edforles s than t hr ee m on th s. The to ta l am ou ntof t he pa ym en ts , as re co ns tru ct edby pet it io ne rs an d a s 5 rep orte d b y

Ro m anTruc ks on th e Fo rm 10 99 -MI SC, b oth fe ll sh ort o f th e am ou nt pe ti ti on er s ho ul d h av e rec ei ve d u nd er the term s o f th e em pl oym en t l et te r, if pe ti ti on er wo rk edfor

a to ta l o f th ree m on th s (wh ic h i s u nc le ar fro m th e rec or d)
. See s up ra n ot e 4 . On th e b as is of a n a nn ua l s al ary of $1 25 ,00 0, p et it io ne r sh ou ld ha ve rece iv ed$1 0,4 16 .67 pe r m on th (as anin de pe nd en t co nt ract or ).- 7 -

te st im on y reg ard in g the actua l am ou ntth atRo m anTruc ks pa idhi m was v ag ue an d in co ns is te nt . At on e p oi ntpe ti ti on er i nd ic at edth athe m ay ha ve rece iv ed pa ym en ts fro m

Ro m anTruc ks inex ces s o f $1 2,0 00 an d s ug ge st edth atsu ch pa ym en ts were re im

bu rs em en t fo r tr av el . He si m pl y see m edun cert ai n a s t o t he
am ount s re cei ve d. Pet it io ne r di d n otpre se ntan y do cu m en ta ti onof r ei m

burs edex pe ns es or in tro du ce ev id en ce o f Ro m anTruc ks ’ rei m bu rs em en t p ol ic y ; n ordi d h e p ro vi de
an y reco rd s o f wire tra ns fers , ban k s ta te m en ts , or c op ie s o f pa y stub s de m on st rat in g t ha t h e rec ei ve d o nl y $1 2,0 00 fro m

Ro m anTruc ks du rin g 2 00 9. Inth e li gh t o f al l o f th e ev id en ce i n t he reco rd , th e Co urt fi nd s tha t pe ti ti on er re cei ve d fr om

Ro m anTruc ks , bu t fa il edto rep ort, $ 24 ,72 5 i n co m pe ns at io n; th eref

or e, res po nd en t’s d et erm in at io n i s s us ta in ed
. 2. Accu racy-Rel at edPen al ty Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s a p en al ty equ al to 20 % of a ny un de rp aym en t o f ta x t ha t i s at tri bu tabl e to eit he r ne gl ig en ce o r di sr eg ardof rul es orreg ul at io ns or t o asubs tant ia l u nd ers ta te m en t o f in co m e ta x. The term “ ne gl ig en ce” i nc lu de s an y fai lu re t o m ak e a rea so nabl e at te m ptto co m pl y with t he pro vi si on s o f th e in te rn al rev enue laws . Sec. 6 66 2( c); sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Th e te rm “ di sr eg ard ” in cl ud es any care le ss ,- 8 -

reck le ss , or i nt en ti on al di sr eg ard . Sec. 6 66 2( c); sec . 1.6 66 2- 3( b) (2 ), In co m e Tax Reg s. An u nd ers ta te m en t o f in co m e ta x i s “ subs tant ia l” if i t ex ceed s the gre at er o f 10 % of t he tax requi redto be sh own on th e return o r $5 ,00 0. Se c. 66 62 (d )(1 )(A). An “ un de rs ta te m en t” is de fin edas t he ex ces s o f th e ta x re qu ire d t o b e sh own on th e return o ve r th e ta x a ctua ll y sh own on th e return, re du cedby any reb at e. Sec. 66 62 (d )(2 )(A). Whe th er the accu racy-rela te d p en al ty is ap pl ie d b ecau se of n eg li ge nc e o r di sr eg ardof rul es or r eg ul at io ns or asubs tant ia l u nd ers ta te m en t o f in co m e ta x, se ct io n 6 66 4 p ro vi de s an ex cep ti onto im po si ti on of t he accu racy-rela te d p en al ty if th e ta xp ay er es tabl is he s tha t the re was reas on ab le cau se forth e und erp aym en t an d th atth e ta xp ay er ac te d i n g oo d fa ith wi th res pe ctto th atpo rti on . Sec. 6 66 4( c)(1 );
se c. 1.6 66 4- 4( b) , Inc om e Tax Reg s. Th e d et erm in at io n o f whe th er a t ax pa y er act edwith re as on ab le cau se an d i n g oo d fa ith i s m ad e o n acas e-b y -cas e b as is , ta ki ng in to acco un t al l the pe rti ne ntfact s an d c irc um st an ces . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Gen eral ly, th e m os t i m po rta ntfact oris th e ex te ntof the ta xp ay er’s eff

ort t o a ss es s the pro pe r ta x l iabi li ty, in cl ud in g re li an ce o n t he advi ce of a ta x re tu rnpre pa rer. Id
.- 9 -

By vi rtu e o f se ct io n 7 49 1( c), res po nd en t h as th e b ur de n o f pr oduc ti on with
res pe ctto th e acc ur acy-rela te d p en al ty. To m eetth is bu rd en , res po nd en t m us t pr oduc e su ffi ci en t ev id en ce i nd ic at in g tha t i t i s ap pr op ria te to im po se th e p en al ty. See Hi gb ee v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ). Once res po nd en t m eet s th is bu rd enof p ro du ct io n, p et it io ne rs m us t co m e fo rwardwith p ers ua si ve ev id en ce th atres po nd en t’s d et erm in at io n i s i nc orrect . See Ru le 14 2( a); Hig be e v . Co m m is si on er, 1 16 T.C. at 4 46 . As a d efen se to th e p en al ty, pe ti ti on ers be ar the bu rd enof p ro vi ng th atth ey act edwith re as on ab le cau se an d i n g oo d fa ith. Se e se c. 66 64 (c)( 1) ; s ee al so Hig be e v . Comm is si on er, 1 16 T.C. 43 8; sec . 1.6 66 4- 4( b) (1 ), In co m e Tax Reg s. Res po nd en t s at is fie d h is bu rd enof p ro du ct io n u nd er s ect io n 7 49 1( c) be cau se th e rec or d s ho ws tha t p et it io ne rs were n eg li ge ntan d fa il edto m ak e a reas on ab le att em

ptto co m pl y with t he ir o bl ig at io n t o re po rt g ro ss in co m e. See
se c. 61 (a). Pet it io ne r rec ei ve d i nc om e fro m Ro m anTruc ks in20 09 bu t fa il edto rep ort thi s i nc om e o n p et it io ne rs ’ Fed eral in co m e ta x re turn . Peti ti on ers ha ve no t de m on st rat edth atth ey

ha d re as on ab le cau se forth ei r un de rp aym en t o r th atth ey act edingo odfai th . See s ec. 6 66 4( c). Thu s, p et it io ne rs are l iabl e fo r th e se ct io n 66 62 (a) a ccu racy-rela te d p en al ty.- 10 -

W e h av e co ns id eredth e p art ie s’ arg um en ts an d, t o t he ex te ntno t d is cu ss ed he rei n, we co nc lu de th e arg um en ts to be irr el ev an t, m oo t, o r witho utm eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red
un de r Ru le 15 5.