T.C. Mem o. 2 01 5- 15 2

UNITED STAT ES TAX COURT

SCOTT A. WHITTINGTON, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No s. 2 06 0- 13 , 11 09 6- 14
. Fi le d Au gu st11 , 20 15
.
Sco ttA. Whi tt in gt on , pro se. Lis a M. Os hi ro , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Ju dg e: Res po nd en t d et erm in edde fic ie nc ie s, ad di ti on s t o t ax , and pe na lt ie s wi thres pe ctto pe ti ti on er’s Fed eral in co m e ta x l iabi li ti es for20 06 th ro ug h 2 01 1 a s fo ll ows :- 2 -

[* 2] Sco ttA. Whi tt in gt on , Dock etNo. 2 06 0- 13 Add it io ns to tax Sec. Sec. Sec. Year Defic ie nc y 66 51 (a)( 1) 66 51 (a)( 2) 66 54 20 06 $5 6,9 71 $1 2,8 18 .48 $1 4,2 42 .75 $2 ,69 6.0 9 20 07 58 ,38 1 13 ,13 5.7 3 14 ,59 5.2 5 2,6 57 .06 20 08 68 ,09 2 15 ,32 0.7 0 ( ) 2,1 88 .27 1 20 09 64 ,34 5 14 ,47 7.6 3 ( ) 1,5 40 .59 1 Sco ttA. Whi tt in gt on , Dock etNo. 1 10 96 -1 4 Add it io ns to tax Sec. Sec. Sec. Year Defi ci en cy 66 51 (a)( 1) 66 51 (a)( 2) 66 54 20 10 $5 6,1 72 $1 2,4 29 .23 ( ) $1 ,18 2.4 7 1 20 11 43 ,36 3 9,7 01 .78 ( ) 85 3.1 5 1 The no ti ces of d efi ci en cy st at e th atth es e am ou nt s ar e to be co m pu te d o r 1 wil l b e co m

pu te d a t a l at er d at e. The de te rm in at io n i nc lu de d 5 0% o f in co m e earne d b y pe ti ti on er’s wif

e. At the
sa m e ti m e, res po nd en t d et erm in edde fic ie nc ie s wi th res pe ctto pe ti ti on er’s wif e o n th e th eo ry

th atearn in gs of p et it io ne r an d o f hi s wi fe were co m m un it y pro pe rty un de r W as hi ng to n S ta te st atut es .- 3 -

[* 3] The cas es of p et it io ne r an d h is wife were co ns ol id at edfortri al , bu t atth e co nc lu si on of t ria l re sp on de ntco nc ed edth atpe ti ti on er an d h is wife ha d
m ai nt ai ne d t he ir e arn in gs as s ep arat e p ro pe rty. Becau se pe ti ti on er’s wif e h adfil ed ti m el y returns rep orti ng he r in co m e an d “ m arri edfil in g s ep arat el y ” st atus , de ci si on s wer e en te redinhe r fav or . Res po nd en t s ub m it te d re vi se d c om pu ta ti on s o f pe ti ti on er’s l iabi li ty sho win g th e fo ll owi ng am ou nt s: Sco ttA. Whi tt in gt on , Dock etNo. 2 06 0- 13 Add it io ns to tax Sec. Sec. Sec. Year Defi ci en cy 66 51 (a)( 1) 66 51 (a)( 2) 66 54 20 06 $5 1,8 64 $1 1,6 69 .40 $1 2,9 66 .00 $2 ,45 4.4 2 20 07 52 ,16 2 11 ,73 6.4 5 13 ,04 0.5 0 2,3 74 .07 20 08 61 ,40 1 13 ,81 5.2 3 15 ,35 0.2 5 1,9 73 .19 20 09 59 ,23 6 13 ,32 8.1 0 14 ,80 9.0 0 1,4 18 .27 Sco ttA. Whi tt in gt on , Dock etNo. 1 10 96 -1 4 Add it io ns to tax Sec. Sec. Sec. Year Defi ci en cy 66 51 (a)( 1) 66 51 (a)( 2) 66 54 20 10 $5 3,9 71 $1 2,1 43 .48 $1 3,2 22 .90 $1 ,15 7.4 6 20 11 42 ,20 6 9,4 96 .35 7,8 08 .11 83 5.5 8- 4 -

[* 4] Pet it io ne r ob

jects to th os e co m

pu ta ti on s o n t he gro un d tha t the in co m e am ou nt s d et erm in edby resp on de ntin cl ud e rei m bu rs em en ts of e xp en se s p et it io ne r in cu rredon be ha lf o f Tom arco Co nt ract orSp eci al ti es , Inc . (Tom arco ), an d/ or Sei sm ic Supp ort Se rv ic es , LLC (Sei sm ic ). He furth er o bjec ts on th e g ro un d o f al le ge d d efec ts insubs ti tu te s fo r return p rep aredun de r se ct io n 6 02 0( b) . The i ss ue fo r de ci si on is whet he r an y furth er ad

jus tm en ts to res po nd en t’s co m pu ta ti on s ar e m eri te d. Al l s ect io n re fere nc es are t o t he Int ern al Rev enue Co de ineffe ctforth e y ears inis su e, an d a ll Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d Pro cedur e. FINDINGS OF FACT So m e o f th e fac ts ha ve be enst ip ul at ed , andth e st ip ul at edfact s ar e in co rp or at edinou r fi nd in gs by thi s re fere nc e. Pet it io ne r res id edinW as hi ng to n St at e whe n h e fi le d h is pe ti ti on s. Du rin g the y ears inis su e, he rece iv ed
co m pe ns at io n fo r hi s s erv ic es fro m Sei sm ic , an e nt it y

th athe ha d fo rm edin20 03 to serve as aco nt ract orforTom arco . Peti ti on er was a 95 % pa rtn er i n S ei sm ic an d pe rfo rm edm os t o f th e se rv ic es pro vi de d b y Sei sm ic . Duri ng th e y ears inis su e, he
rece iv edco m

pe ns at io n fo r hi s s erv ic es . He als o re cei ve d i nc om e in th e fo rm of pa rtn ers hi p d is tri bu ti on s, m il eag e an d trav el rei m bu rs em en ts , andga m

bl in g win ni ng s.- 5 -

[* 5] Mo stof t he pa ym en ts to pe ti ti on er fro m Sei sm ic for20 07 , 20 08 , and20 09 were d et erm in edto be gu aran te edpa ym en ts inSei sm ic Supp ort Se rv s., LLC v
. Co m m is si on er, T.C. Mem o. 2 01 4- 78 . In T.C. Me m o. 2 01 5- 15 1, fi le d t hi s d at e, th e Co urt d et erm in es th atSei sm ic m ad e g ua ran te edpaym en ts to pe ti ti on er dur in g 20 10 an d 2 01 1. Co nt rary to t he st ip ul at io n fi le d b y th e p art ie s i n t he se cas es , T.C. Mem o. 2 01 4- 78 di d n otm ak e a d et erm in at io n wi th res pe ctto 20 06 . In the no ti ce of de fic ie nc y

indo ck etNo. 2 06 0- 13 , ho wev er, res po nd en t d et erm in edth at pe ti ti on er re cei ve d c om

pe ns at io n fo r se rv ic es subjec t t o i nc om e an d s el fem pl oym en t t ax in20 06 as we ll as i n 2 00 7, 2 00 8, an d 2 00 9. Pet it io ne r rec ei ve d c he ck s fr om Tom arco for$7 40 , $3 ,66 4, $ 6,5 68 , $9 ,80 7, $1 3,6 45 , and$6 92 du rin g t he y ears 20 06 , 20 07 , 20 08 , 20 09 , 20 10 , and20 11 , res pe ct iv el y . Peti ti on er re cei ve d c he ck s fr om Sei sm ic be ari ng no ta ti on s o f
m il eag e rei m

bu rs em en t fo r $6 ,13 9.4 5, $ 10 ,42 5, $ 9,7 18 , $1 3,5 95 , $1 6,6 42 , and $1 0,7 43 du rin g t he y ears 20 06 , 20 07 , 20 08 , 20 09 , 20 10 , and20 11 , res pe ct iv el y . The mil eag e rei m

bu rs em en t am ou nt s wer e d educ te d o n S ei sm ic ’s partn ers hi p t ax returns inde te rm in in g t he am ou nt s d is tri bu te d t o p et it io ne r as th e co nt ro ll in g pa rtn er o f Sei sm ic
. Pet it io ne r st op pe d fi li ng Fed eral in co m e ta x re tu rn s s om et im e inth e 1 99 0s , an d h e d idno t fi le Fed eral in co m e ta x re tu rn s o r pa y any tax foran y

of t he y ears in- 6 -

[* 6] is su e. Whe n t he Int ern al Rev enue Serv ic e (IR S) co m m en cedanau di t b as ed
on in fo rm at io n re cei ve d fr om th irdpa rti es who m ad e p aym en ts to pe ti ti on er, h e wro te a se rie s o f le tt ers co nt ai ni ng fri vo lo us arg um en ts an d i ns ul ti ng term in ol og y in whi chhe de ni edth athe was re qu ire d t o fi le tax returns or p ay in co m e ta x. He
m ai nt ai ne d s im il ar t act ic s dur in g t he co ur se of t he se cas es an d d idno t ra is e an y bo nafid e d is pu te with re sp ectto th e am ou nt s o r na tu re o f pa ym en ts th athe ha d
rece iv eddu rin g the y ears inis su e. The o nl y subs ta nt iv e an d m eri to rio us arg um en t rai se d i n h is pe ti ti on s was th atth e d et erm in at io ns of c omm un it y pro pe rty in the
no ti ces of d efi ci en cy

were erro ne ou s. The no ti ces of d efi ci en cy were b as edon pro pe rly prep aredan d c ert ifi ed
subs ti tu te s fo r return p rep aredby the IRS u nd er s ect io n 6 02 0( b)
. OPINION At the cal l o f th e cas e fo r tr ia l an d a t the co m m en cem en t o f tr ia l, p et it io ne r reque st ed“ th atth e Co urt al lo w m e ti m e to cal l the witne ss es th atpre paredth e no ti ce o f de fic ie nc y

an d t he subs ti tu te forreturns forSco ttWhi tt in gt on .” He ha d
no t s ub po en aedan y

witne ss es be fo re tria l, p ur po rti ng to be li ev e th atth e Co urt h ad to is su e th e subp oe na s u nd er s eal when th e cas e was cal le d. Ap pa ren tl y he ha d readon ly the fir stsen te nc e o f Ru le 14 7( a), wh ic h i s fo ll owe d b y :- 7 -

[* 7] A subp oe na , in cl ud in g asubp oe naforth e p ro du ct io n o f do cu m en ta ry

ev id en ce o r el ect ro ni cal ly sto redin fo rm at io n, s ig ne d an d s eal edbu t o th erwi se bl an k, s ha ll be is su edto a pa rty requ es ti ng it , who sh al l fi ll itinbe fo re s erv ic e. Subp oe na s m ay be ob ta in edat th e Offi ce o f th e Cl erkinW as hi ng to n, D.C., o r fro m a tr ia l cl erkat a tri al ses si on . Inan y ev en t, the pe rs on s p rep ari ng th e n ot ic es of d efi ci en cy or t he
subs ti tu te s fo r return wer e n otpro pe r wit ne ss es . A tria l b efo re the Co urt i s a pr oc eed in g d e n ov o, an d o urred et erm in at io ns of p et it io ne r’s ta x l iabi li ti es are ba se d o n t he m eri ts an d n oton an y m at te rs oc cu rri ng be fo re the no ti ces of de fic ie nc y

were s en t. Gree nb erg ’s Exp res s, In c. v. Co m m is si on er, 6 2 T.C. 3 24 , 32 7- 32 8 (1 97 4)
. Inhi s p et it io ns an d i n re qu es ts foradm is si on s t ha t h e fi le d, p et it io ne r as se rte d tha t h e h adno in co m e dur in g t he y ears inis su e an d was no t re qu ire d t o fil e returns . The s ti pu la ti on , ho wev er, co nt ai ne d b an k re co rd s an d c op ie s o f ch eck s fo r pa ym en ts by T om arco an d S ei sm ic est ab li sh in g h is rece ip t o f
co m pe ns at io n fo r se rv ic es , as wel l as ev id en ce o f ga m bl in g i nc om e an d o th er in co m e. All of t ha t i nc om e was gro ss in co m e u nd er s ect io n 6 1 a ndtax ab le in co m e un de r se ct io n 6 3, an d t he am ou nt s fa r ex ceed edth e le ve ls requi rin g areturn u nd er se ct io ns 1(d ), 60 11 (a), an d 6 01 2( a). Pet it io ne r’s cl ai m s t o t he co nt rary are fri vo lo us an d re qu ire no furth er co m m en t. See Crai n v . Comm is si on er, 7 37 F.2d- 8 -

[* 8] 14 17 , 14 18 (5t h C ir. 1 98 4) . He pre se nt edno ev id en ce tha t h e is no t s ub ject t o se lf- em pl oym en t t ax . The s ti pu la te d fa ct s al so est ab li sh edth atth e se ct io n 6 02 0( b) returns co nf

orm edto th e st atut ory

requi rem en ts an d tha t the ad di ti on s t o t ax were ap pr op ria te . Peti ti on er p res en te d n o e vi de nc e o f rea so nabl e cau se for hi s adm it te d fai lu re t o fi le returns an d p ay tax es . The on ly test im on y

at t ria l co nc ern edth e co m m un it y pro pe rty iss ue . Pet it io ne r’s wife tes ti fie d t ha t wh ensh e m arri edpe ti ti on er s he di d n otun de rs ta nd
orap pr ov e o f hi s t ax vi ews , so th ey de ci de d t o k eep th ei r fi na nc es sep arat e. At the
co nc lu si on of t he tri al , res po nd en t co nc ed edth e co m m un it y pro pe rty iss ue . As is
co m m on incas es in vo lv in g s po us es res id in g i n c omm un it y pro pe rty Stat es , th e de fic ie nc y

de te rm in at io ns inth e st atut ory no ti ces in cl ud ed10 0% o f pe ti ti on er’s in co m e an d 5 0% o f hi s wi fe’s i nc om e. As a re su lt , itwas n eces sa ry to reco m pu te th e d efi ci en ci es inpe ti ti on er’s cas es to eli m in at e in co m e earne d b y hi s wi fe dur in g th e y ears inis su e. Res po nd en t al so co nc ed eda m in orerro r in in co rp or at in g in fo rm at io n fr om

form s fi le d b y

Sei sm ic in20 09 . Purs ua ntto th e Co urt’s di rect io n, re sp on de ntsubm it te d re vi se d c om pu ta ti on s o f de fic ie nc ie s an d a dd it io ns to tax , fol lo win g t he pro cedur es of Rul e 1 55 . Peti ti on er fi le d h is ob jecti on s t o t he
rev is edco m

pu ta ti on s.- 9 -

[* 9] Pet it io ne r di d n otcla im an y de du ct io ns for

ve hi cl e o r ot he r tr av el ex pe ns es in hi s p et it io ns or p retria l fi li ng s. He arg ue d a t the co nc lu si on of t he tri al an d i n hi s o bjec ti on to th e rev is edco m pu ta ti on s t ha t re im

bu rs em en ts he rece iv edfro m Tom arco an d S ei sm ic sh ou ldno t b e in cl ud edinhi s t ax ab le in co m e. Altho ug h tra ns m it ta ls of c he ck s fr om Tom arco pa y in g h is cla im s fo r rei m bu rs em en t an d a pu rp orte d m il eag e lo g wer e at ta ch edto th e st ip ul at io n, re sp on de ntob jecte d t o th os e ex hi bi ts onhe ars ay gro un ds ; tho se ex hi bi ts were n otrece iv edforth e trut h o f th ei r co nt en ts . Peti ti on er fa il edto pre se ntev id en ce tha t h e in cu rredth e ex pe ns es fo r whi ch rei m

bu rs em en t was cla im edor t es ti m on y ex pl ai ni ng th e p rep arat io n o f th e lo g o r th e si gn ifi can ce o f th e num be rs reco rd edon it . Becau se he was n otan em pl oyee of eit he r Tom arco or S ei sm ic durin g t he y ears inis su e, he was n ot en ti tl edto ex cl ud e th e rei m bu rs em en ts fro m

gro ss in co m e u nd er s ect io n 6 2( a)(2 ). Bec au se he di d n otfil e ta x re tu rn s fo r th e y ears inis su e, he di d n otpro pe rly clai m an y de du ct io ns forth e ex pe ns es to be off se t ag ai ns t the pa ym en ts fro m Tom arco orSei sm ic , andth e rec or d i s d ev oi d o f an y un de rlyin g d oc um en ts supp orti ng hi s rei m bu rs em en t cl ai m s. He fai le d t o s ub st an ti at e th e ti m e, pl ace, a ndbu si ne ss pu rp os e o f th e m il eag e p ai d fo r by Seis m ic as r equi redby sect io n 2 74 (d ).- 10 -

[* 10 ] Ru le 14 9( b) pro vi de s, i n p art :

(b ) Fai lu re o f Pro of

: Fa il ur e to pro du ce ev id en ce, i n s up po rt o f anis su e o f fac t as to whi ch a pa rty has th e b ur de n o f pr oo f an d wh ic h ha s n otbe enco nc ed edby suc h p arty ’s adv ers ary, m ay be gro un d fo r di sm is sa l o r fo r de te rm in at io n o f th e aff ect edis su e ag ai ns t tha t p arty . Fact s m ay

be est ab li sh edby sti pu la ti on inacco rd an ce wi th Ru le 91 , bu t the m ere f

il in g o f su ch st ip ul at io n d oe s n otrel ie ve th e p arty , up on who m res ts th e b ur de n o f pr oo f, of th e n eces si ty of pr op erl y pr oduc in g e vi de nc e in supp ort o f fac ts no t ad equa te ly establ is he d b y su ch st ip ul at io n. Pet it io ne r ha d t he bu rd enof p ro of with re sp ectto res po nd en t’s d et erm in at io ns an d pa rti cu la rly con cern in g the de du ct io ns he no w cla im s. See Ru le 14 2( a); New Co lo ni al Ice Co . v. Hel ve rin g, 2 92 U.S. 43 5, 4 40 (19 34 ); R oc kwe ll v. Co m m is si on er, 5 12 F.2d88 2, 8 86 (9t h C ir. 1 97 5) , aff’g T.C. Mem o. 1 97 2- 13 3. He fai le d t o s at is fy

th atbu rd eninev ery res pe ct , andhe is no t en ti tl edto de du ct th e am ou nt s re co rd edas r ei m bu rs em en ts by the pa y or s. Pet it io ne r al so arg ue s t ha t the subs ti tu te s fo r return p rep aredun de r se ct io n 60 20 (b ) fai le d t o s at is fy

requi rem en ts incas es in vo lv in g t he ad equa cy of r eturns subm it te d b y

tax pa y ers . Tho se cas es are i napp os it e. Sect io n 6 02 0( b) pro vi de s requi rem en ts forsubs ti tu te s fo r return p rep aredby the IRS. Sec ti on 60 20 (b )(2 ) pr ov id es th at“ [a]ny return s o m ad e an d s ub sc rib edby the Secr et ary sh al l b e p rima faci e g oo d a ndsu ffi ci en t fo r al l l eg al pu rp os es .”- 11 -

[* 11 ] Inan y

ev en t, n ei th er a re tu rnno r a s ub st itut e fo r return i s a p rere qu is it e to a no ti ce o f de fic ie nc y . Roa t v . Comm is si on er, 8 47 F.2d13 79 , 13 81 -1 38 2 (9 th Cir
. 19 88 ); Ha rtman v. C omm is si on er, 6 5 T.C. 5 42 , 54 6 (1 97 5) . The ex is te nc e o r ab se nc e o f a s ub st itut e fo r return u nd er s ect io n 6 02 0 i s t hu s i rrel ev an t t o the
va li di ty of th e st atut ory

no ti ce. Itis rel ev an t o nl y to ad di ti on s t o t ax un de r se ct io n 66 51 (a)( 2) . See Wheel er v . Comm is si on er, 1 27 T.C. 20 0, 2 09 -2 10 (20 06 ), aff’d, 52 1 F .3d12 89 (10 th Cir . 20 08 ). To the ex te ntth atpe ti ti on er’s arg um en ts de pe nd
on th e cl ai m edin va li di ty of subs ti tu te s fo r return p rep aredun de r se ct io n 6 02 0( b) , th ey ha ve no m eri t. Insu m m ary, pe ti ti on er h as pre se nt edne it he r ev id en ce n orarg um en ts sh owi ng th atres po nd en t’s re vi se d c om pu ta ti on s ar e in co rrec t. To re fle ctth e fo reg oi ng , Deci si on s wi ll be en te redforth e am ou nt s s ho wn i n re sp on de nt ’s po st tri al co m

pu ta ti on s.