TAX COURT OPINION

Case: Robert E. Atkins & Beverly A. Dickerson
Docket Number: 7724-14
Judge: Goeke
Opinion Type: bench
Filed: 07/08/2015
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 ROBERT E. ATKINS & BEVERLY A. DICKERSON, Petitioner(s), v. ) ) ) ) ) ) Docket No. 7724-14. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Houston, Texas on June 24, 2015, 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 under Rule 155, Tax Court Rules of Practice and Procedure. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. July 8, 2015 SERVED JUL 1 0 2015 Capital Reporting Company 3 1 2 Bench Opinion by Judge Joseph Robert Goeke June 24, 2015 3 Robert E. Atkins & Beverly A. Dickerson v. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Commissioner Docket Number 7724-14 The Court has decided to render oral findings of fact and opinion 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 relied upon as precedent in any other case. This opinion is rendered pursuant to the authority provided by section 7459(b) of the Internal Revenue Code. Section references hereinafter are to the Internal Revenue Code. This opinion is also authorized by Rule 152 of the Tax Court Rules of Practice and Procedure. 18 Hereinafter rule references are to the Tax Court 19 20 21 22 Rules of Practice and Procedure. The Court has jurisdiction over this case pursuant to sections 6212(c), 6213(a), and 6214(a). This case is a deficiency case, where the 23 Petitioners timely filed a petition upon receipt of a 24 25 notice of deficiency from the Internal Revenue Service. 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 4 1 At time the petition was filed, the 2 Petitioners were residents of Texas. 3 4 5 6 7 8 9 10 11 12 The notice of deficiency in this case was for the years 2008, 2009, and 2010. Respondent determined deficiencies in federal income tax for all three of those years and additions to tax under section 6662. The parties filed a stipulation of facts and a stipulation of settled issues in this case, and the stipulation of facts is incorporated herein by this reference. The stipulation of settled issues resolves 13 all the issues in the case, with the exception of the 14 application of the addition to tax and the proper 15 methodology for determining Petitioners' tax 16 17 18 19 20 21 22 23 24 liability under section 911(f). On their joint federal income tax returns for the years at issue, Petitioners claimed various Schedule C and Schedule A deductions. The stipulation of settled issues resolved the dispute relative to those deduction claims by disallowing various deductions and reaching an intermediate resolution of some other deductions. For instance, for the year 2008, 25 Petitioners claimed a Schedule C loss in the amount 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 of $11,247 for overseas contracting activity, and the stipulation of settled issues provides that 3 Petitioners are not entitled to any amount for this 4 5 6 7 8 9 10 11 12 13 loss. Regarding Schedule A losses, the stipulation of settled issue results in the reduction of the claimed losses for 2008 and 2009 and the elimination of all the claimed deductions under Schedule A for the year 2010. The stipulation of settled issues results in the necessity for the application of Rule 155 to do a computation of the correct tax liability. At trial and in the stipulation of facts, 14 Petitioners have offered no evidence that would 15 16 17 18 19 provide a reasonable basis for the errors in the amounts claimed on Schedules A and C of their joint federal income tax returns for the years at issue. Because of the stipulation of settled issues, there are only two issues remaining for the 20 Court's determination: the application of the 21 22 23 addition to tax under section 6662 and whether Respondent has correctly explained the computation of the tax liability under section 911(f) or whether 24 Petitioners' version of the application of that 25 section is correct. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 We'll first discuss section 6662. The notice of deficiency indicates that the addition to tax under section 6662 for the years at issue results from substantial understatement of the tax shown on the return, and negligence. We sustain the addition to tax on the basis of negligence. We note that Respondent has the burden of production pursuant to section 7491 and Rule 142(a)(1). We believe that the stipulation of settled issues carries the burden of production relative to a basis for the addition to tax because it establishes the gross overstatement of various deductions on the returns for the years in question. Once Respondent has carried the burden of production, the Petitioner has the burden of proof relative to the underlying liability and the application of the addition to tax. Petitioner has offered us no evidence to sustain Petitioners' potential argument that there was reasonable cause and good faith for the positions taken on the return. A showing of reasonable cause and good faith would relieve Petitioners of the addition to tax pursuant to section 6664(c). However, 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 Petitioners' failure to present any evidence in this 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 regard causes us to reach the determination that the addition to taxes is sustained for the three years in question and will pplied to the revised deficiency computations resulting from the stipulation of settled issues. The final issue is how the tax liability should be computed and whether the tax liability should be based upon the lesser amount of income after the exclusion of foreign income, as agreed by the parties, or based upon the application of a "stacking rule," which would apply a rate of income tax based upon a higher level of taxable income including the foreign excluded income in determining the applicable rate. Petitioners argued at trial that the rate should be based upon the reduced amount of taxable income after the exclusion of the foreign- earned amount. We have read section 911(f) and the background materials, which explain why this provision was adopted by Congress, and we determine that Petitioners' analysis of the code section is simply incorrect and that the stacking rule is designed to determine the applicable tax rate based upon the amount of gross income which would have hypothetically existed had the foreign-earned income 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 Capital Reporting Company 8 been earned in the United States. Given these determinations and the stipulation of settled issues, as we explained previously, a Rule 155 computation will be necessary in this case. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 1:51 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