TAX COURT OPINION

Case: Keith Olin Hedman
Docket Number: 10406-13S
Judge: Panuthos
Opinion Type: bench
Filed: 02/19/2016
Pages: 11

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 KEITH OLIN HEDMAN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) ) 10406-13S. ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Chief Special Trial Judge Peter J. Panuthos at San Francisco, California on February 9, 2016, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for Respondent. (Signed) Peter J. Panuthos Special Trial Judge Dated: Washington, D.C. February 19, 2016 SERVED Feb 19 2016 Capital Reporting Company 3 Bench Opinion by Special Trial Judge Peter J. Panuthos February 9, 2016 1 2 3 4 Keith Olin Hedman v. Commissioner 5 7 8 9 10 11 12 13 14 15 Docket No. 10406-13S THE COURT: The ourt has decided to render oral findings of fact and gpinion in this case, and the following represents the Court's oral findings of fact and opinion. The oral findings of :fact and opinion shall not be relie upon as precedent in any other case. This case was hedrd pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed. 16 All section references refer to the Internal Revenue 17 . Code then in effect. 18 19 20 21 By Notice of Deficiency dated February 4, 2013, Respondent determined a deficiency for the taxable year 2010 in the amount of $16,482. Respondent also determined auí addition to tax under (cid:16)04222section 6651(a)(1) in the amount of $1620, and an 23 24 25 accuracy-related penalty under section 6662(a) in the amount of $3296. At the time the petition was filed, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 Petitioner resided in Caliqornia. i The issues for dqcision are, one, whether Petitioner received income in the distribution of funds from two retirement dccounts in the respective amounts of $20,124 and $22,747; two, whether 6 Petitioner received $10 of interest income from 7 8 9 Aurora Loan Services; threq, whether Petitioner is liable for the 10 percent additional tax on an early distribution, pursuant to section 72(t); whether 10 Petitioner is subject to tde delinquency addition for 11 failure to file a timely return; and whether 12 Petitioner is subject to the accuracy-related penalty 13 14 15 16 17 18 19 under section 6662(a). Petitioner refused to execute a Stipulation of Facts in this case. When the matter was called at the calendar call, and again for trial, Petitioner refused to state his name nd indicated that he represented a corporation in his name. He did provide his first name, "Keith," and advised the 20 Court that this was his complete name. 21 The Court explained to Petitioner that 22 Respondent's counsel would make an opening statement 23 and when the opening state ent was completed, 24 Petitioner would be given an opportunity to present 25 testimony. After Respondent completed his opening 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 statement, the Court offered Petitioner the opportunity to be sworn in to provide testimony. Petitioner declined and offered some remarks about the unfairne s of the proceeding. The Court explained to Petitioner that his failure t o present evidenc , either documents or sworn testimony, would lik ly result in a decision entered against him. Peti ioner continued to make irrelevant claims and declined again to present any documentary evidence or sworn testimony. Respondent presented a transcript of account which was made part of the record. The transcript reflects that Petitioner' s 2010 federal tax return was filed on Fel ruary 21, 2012. The transcript further reflects that Petitioner received distributions in 2010 as follows: one, $20,124, from 17 National Financial Services, LLC; two, $22, 747, from 18 Nationwide Life Insurance Company; and, three, $10 19 20 interest income from Aurora Loan Services. Gross income inc udes all income from 21 whatever source derived. Sec. 61(a). 22 23 24 25 In general, the Commissioner's determination set forth in a Notice of Deficiency is presumed correct and the taxpayer bears the burden of proving otherwise. Rule 142 (a) ; Welch v. Helvering, 866.488 DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 290 US 111, 115 (1933). Pursuant to sectïon 7491(a), the burden of proof as to factual matters shifts to Commissioner under certain circumstanced. Petitioner did not allege or otherwise show that section 7491(a) applies. See sec. 7491(a)(2) (A) and (B). Therefore, sectidn 7491(a) does not shift the burden of proof. In unreported income cases, the Commissioner must base the deficiency on some substantive evidence that the taxpayer received the unreported income. Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999) ;affg. TC Memo 1997-97. If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer. Id. The transcript of account is sufficient evidence to shift the burden of proof to Petitioner. We also note that section 6201(d) provides that in any court proceeding where a taxpayer asserts reasonable dispute with respect to any item of income reported on an information return, and the taxpayer has fully cooperated with the Secretary, the Secretary has the burden of producing reasonable and probative information conc rning the deficiency, in 866.488 DEPO www.CapitalRepo¢tingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 addition to the information on the return. The key term in the foregoing sentence is "reasonable dispute." Petitioner failed to assert a reasonable dispute because Petitioner declined to present any evidence, either in the form of documents or testimony on the items gf income reported on the informational returns. Accordingly, Petitioner bears the burden of proof. Petitioner did not satisfy his burden of proof because he declined to produce any evidence or produce any, provide any testimony. Since Petitioner failed to carry his burden of proof, we sustain 14 Respondent's determinations that Petitioner received, 15 16 17 18 one, income in the distribution of funds from two retirement accounts in the respective amounts of $20,124 and $22,747; and, two, that Petitioner received $10 of interest income from Aurora Loan 19 Services. 20 21 22 23 24 25 The Code imposes 'a 10 percent additional tax on early distributions from qualified plan. Sec. 72(t)(1). The 10 percent a ditional tax is not imposed if the distribution comes within a statutory exception. Sec. 72(t)(2). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 Petitioner did nót assert any of the exceptions apply nor did he present evidence that any exception applies. We fin for Respondent on this issue and Petitioner's subject to the 72(t) additional tax. Section 6651(a)(1) imposes an addition to tax for failure to file a return on the date prescribed, including extedsions, unless the taxpayer can establish that the failure is due to a reasonable cause and not due to willfËl neglect. The evidence in the record shows that Pétitioner failed to file his 2010 tax return timely.! Petitioner refused to provide either testimony or documentary evidence that his failure to file timely lwas due to reasonable cause. Therefore, Petit oner is liable for the section 6651(a)(1) additioñ to tax. Section 6662(a) and 03) (1) and (2) imposes a penalty of 20 percent ofithe portion of an underpayment of tax attributable to the taxpayer's negligence, disregard of rdles and regulations, or substantial understatement)of income tax. Negligence includes any failure to ma e a reasonable attempt to comply with the Code, including any failure to keep adequate books and records jor to substantiate items 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalRepo tingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 properly. See sec. 6662(c), sec. 1.6662-3(b)(1), Income Tax Regs. A substantial understatement includes an understatement of income tax that exceeds the greater of 10 percent of the tax required to be shown on the return, or $5000. See sec. 6662(d), sec. 1.6662- 4(b), Income Tax Regs. The section 6662(a) accuracy-related penalty does hot apply with respect to any portion of an underpayment if the taxpayer proves there was reasonable cause for such portion and that he acted in good faith with respect thereto. Sec. 6664(c)(1). The determination of whether a taxpayer acted with reasonable cause and in good faith depends on the. pertinknt facts and circumstances, including the taxpayer's efforts to assess the proper tax liability; the knowledge and the experience of the taxpayer; andlany reliance on the advice of a professional such as an accountant. Sec. 1.6664- 4(b) (1), Income Tax Regs. The Commissioner has the burden of production under section 7491(c) with respect to the accuracy-rela ed penalty under section 6662. To satisfy that burden, the Commissioner must produce sufficient evidence showing that it is appropriate to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 impose the penalty. Higbee v. Commissioner, 116 TC 438, 446 (2001). Respondent determined the accuracy-related penalty for the 2010 tax year based on both negligence and substantial understatement of income tax. The underpayment of tax is a result of a substantial understatement of income tax because thé understatement of $16,482 exceeds $5000, which is greater than 10 percent of.the tax required to be shown on the return. The amount required to be shown on the return was $18,122. Accordingly, because Respondent has met his burden of production, Petitioner's required to come forward with persuasive evidence that the accuracy-related penalty should not be imposed with respect to the underpayment because he acted with reasonable cause and in good faith. See sec. 6664(c) (1); Rule 142(a); Higbee v. Commissioner, 116 TC at 446. Petitioner offered no testimony or other evidence to show that there was reasonable cause for the deductions claimed and that he acted in good faith with respect to the underpayment. Respondent's determination of the accuracy-related penalty under section 6662(a) will be sustained. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 After Petitioner refused to provide his full name to he Court when his case was called, the 3 Court advised Petitioner of the provisions of section 4 5 6 7 6673(a)(1). That section provides that the Court may require a taxpayer to pay the United States a penalty not in excess of $25,000 whenever, among other reasons, it appears that the taxpayer instituted or 8 maintained a proceeding primarily for delay or that 9 the taxpayer's position in the proceeding is 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 frivolous or groundless. See Pierson v. Commissioner, 115 TC 576 (2000). A t xpayer's position is frivolous or groundless if it is contrary to established law and unsupported by reasoned, colorable argument for change in the law. Williams v. Commissioner, 114 Td 136, 144 (2000). While we will not impose a penalty in this case, Petitioner is admonished that if he comes to this Court again and raises frivolous issues, the Court may impose a penalty pursuant to section 6673(a). We have considered all the parties' arguments, and to the extent not addressed herein, we conclude they are moot, irrelevant, or without merit. To reflect the foregoing, decision will be 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 12 entered for Respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon', at 2-46 p.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com