TAX COURT OPINION

Case: Ronald Bonfilio
Docket Number: 14716-07
Judge: Colvin
Opinion Type: bench
Filed: 03/08/2011
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD BONFILIO, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 14716-07. Pursuant to Rule 152(b), Ta Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith the pages of the to petitioner and to respondent a copy of transcript of the trial in the above case before Judge Michael B. Thornton at Washington, D.C., on February 3, 2011, containing his oral the trial. fact and opinion rendered at the conclusion of findings of In accordance with the oral findings of fact and opinion, an appropriate decision will be entered. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. March 8, 2011 IN THE UNITED STATES TAX COURT 1 In the matter of: RONALD BONFILIO, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) Docket No. 14716-07 ) ) ) ) South Courtroom U.S. Tax Court 400 Second Street, N.W. Washington, D.C. Thursday, February 3, 2011 The above entitled matter came on for bench opinion, pursuant to notice, 4:17 p.m. BEFORE: HONORABLE MICHAEL B. THORNTON Judge APPEARANCES: For the Petitioner: WALTER T. CHARLTON, Esquire Walter T. Charlton & Associates 11213 Angus Way Woodsboro, Maryland 21798 (410) 571-8754 For the Respondent: JAY A. ROBERTS, Esquire Internal Revenue Service P.O. Box 50585 Washington, D.C. (202) 874-1832 20091 Heritage Reporting Corporation (202) 628-4888 i 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 8 19 20 21 22 23 24 25 P E Q C E E 2 1 H G S 2 (4:17 p.m.) THE CLERK: All rise. THE COURT: Thank you. Please be seated. Mr. Roberts, even though I initially indicated 14 days to file an amended answer, on further reflection, I don't believe an amended answer will be necessary. MR. ROBERTS: Very well. (Whereupon, a bench opinion was rendered.) // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888 3 l 1 2 Bench Opinion by Judge Michael B. Thornton February 3, 2011 3 . Ronald Bonfilio v. Commissioner Docket No. 14716-07 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: 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. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent. This bench opinion is made pursuant to the authority granted by § 7459(b) and Rule 152. Section references are to the Internal Revenue Code in effect for the taxable years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. This case was tried on February 3, 2011, in Washington, D.C. Walter Charlton represented Petitioner. Jay A. Roberts represented Respondent. Respondent determined deficiencies.of $10,730 and $20,889 in Petitioner's 2001 and 2002 federal income taxes respectively and accuracy-related penalties pursuant to § 6662(a) of $2,146 and $4,178 for 2001 and 2002 respectively. As detailed in their stipulation of settled issues, the parties have Heritage Reporting Corporation (202) 628-4888 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 4 resolved all issues raised in the notice of deficiency except the accuracy-related penalty issue. The only issues remaining for decision in this case are: 1) Whether Petitioner is entitled to net operating loss, NOL, carryforward deductions for 2001 and 2002 and 2) whether Petitioner is liable for the accuracy-related penalty pursuant to § 6662(a) for 2001 and 2002. Petitioner did not claim NOL carryforward deductions.on his federal income tax returns for 2001 or 2002 and has raised this issue in an amended petition filed at trial. Respondent has orally represented that in /his amended answer -- strike /ndC that. Respondent has orally represented that he denies the allegations, the new allegations, in Petitioner's amended petition as to Petitioner's entitlement to the NOL carryforwards. Findings of Fact. During 2001 and 2002, Petitioner was the sole shareholder of United Tel, Inc. (UTI), a Subchapter S corporation which he created in 1986. Discussion. Petitioner claims that he is entitled to NOL carryover deductions originating from losses allegedly sustained by UTI and reported on UTI's Forms 1120-S, U.S. Income Tax Return for an Heritage Reporting Corporation (202) 628-4888 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 5 S Corporation, for tax years 1993 through 2000 and allegedly flowing through to Petitioner's Forms 1040, U.S. Individual Income Tax Return. The burden of proof is on Petitioner. See Rule 142(a). Petitioner does not contend and has not established that he has met the requirements under § 7491(a) to shift the burden of proof as to any factual issue. Generally an S corporation shareholder determines his or her tax liability by taking into account a prorata share of the S corporation's income, losses, deductions and credits. Section 1366(a) (1). The shareholder may not take into account, however, the S corporation losses and deductions for any taxable year in excess of the shareholder's adjusted basis in the S corporation's stock and debt. Section 1366(d) (1). Petitioner has failed to establish his basis in UTI. Although he testified that he made contributions to UTI with funds borrowed from various sources, including multiple refinancings of his home mortgage, there is no substantiation of those amounts. Furthermore, there is no evidence in the record of Petitioner's beginning basis when he started UTI in 1986, no evidence of any changes to his basis Heritage Reporting Corporation (202) 628-4888 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 6 between 1986 and 1992 and inadequate evidence to determine his basis in UTI for any subsequent year. Therefore, Petitioner is not entitled to claim the NOL carryover deductions. Moreover, Petitioner has not established the existence or amount of any NOLs that may be carried over to the years at issue. Section 172(a) allows a taxpayer to deduct an NOL for a taxable year. The amount of the NOL deduction equals the sum of the NOL carryovers plus NOL carryback to that year. Section 44$7~ 172(c) defines the term net operating loss generally as the excess of the deductions allowed by this chapter over the gross income. In support of his claim, Petitioner has produced his Forms 1040 for 1996 through 2000 and UTI's Forms 1120-S for 1992 through 2000. A filed tax return does not, however, establish a taxpayer's entitlement to the amounts reported thereon and does not provide adequate substantiation of Petitioner's c laimed NOL carryover . See Lawinger, 4r,4-W--]EM A' v. Commissioner, 103 T.C. 428, 438 (1994). Petitioner has not produced any documents supporting the income or losses reported on UTI's Forms 1120-S or the amounts reported on his Forms 1040 for any tax year. Heritage Reporting Corporation (202) 628-4888 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 7 If a claimed business expense is deductible, but the taxpayer is unable to substantiate it adequately, the Court is generally permitted to make as close an approximation as possible, bearing heavily on the taxpayer whose inexactitude is of his own making. See Cohan v. Commissioner, 39 F.2d 540, 543 (Second Circuit, 1930). We must, however, have some rational basis on which an estimate may be made. See Vanicek, -V-Pr-N-I-EHii-¥ef v. Commissioner, 85 T.C. 731, 743 /"E (1985). Petitioner has failed to establish the existence and amount of any NOL carryover. Although Petitioner represents that he calculated the NOL to be $104,000, the evidence does not show exactly how Petitioner derived this amount. Furthermore, Petitioner must establish that any NOL carryover can be properly applied to the years at issue. Petitioner must prove that he elected to forego a carryback of any NOL or that the NOL could not be fully deducted against income in the taxable years immediately preceding the taxable year of the NOL and that the NOL could not be deducted against income in the taxable years immediately and chronologically following the taxable year of the NOL. See § 172(b). Heritage Reporting Corporation (202) 628-4888 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 8 Although Petitioner asserts that the alleged NOLs go back to 1993, the record is missing Petitioner's Forms 1040 for years prior to 1996. Consequently, Petitioner has not shown how the alleged NOLs might have been applied for years prior to 1996. Moreover, apart from this problem, the returns that are in evidence are inadequate to prove the amount of allowable NOLs. Petitioner has failed to establish that any carryover can be properly applied to the years at issue. We conclude that Petitioner has failed to establish that he is entitled to NOL deductions for 2001 and 2002. Respondent determined that for each year at issue Petitioner is liable for an accuracy-related penalty pursuant to § 6662(a) and (b) (1) and (2) for substantial understatement of income tax, among other reasons. Respondent bears the burden of production with respect to this penalty. Section 7491(c). To meet this burden, Respondent must produce evidence establishing that it is appropriate to impose the penalty. Once Respondent has done so, the burden of proof is on Petitioner. See Higbee v. Commissioner, 116 T.C. 438, 449 (2001). Section 6662(a) and (b) (2) imposes a 20 percent accuracy-related penalty on any portion of a Heritage Reporting Corporation (202) 628-4888 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 9 tax underpayment that is attributable to any substantial understatement of income tax defined in § 6662(d) (1) (A) as an understatement that exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. On the basis of the parties' stipulation as to the revised deficiency amounts, Respondent has met his burden of production that there is a substantial understatement of income tax. The accuracy-related penalty does not apply with respect to any portion of the underpayment for which it is shown that the taxpayer had reasonable cause and acted in good faith. Section 6664(c) (1). Petitioner has failed to show that he had reasonable cause for the underpayment. We hold that for each year at issue Petitioner is liable for a § 6662(a) penalty for substantial understatements of income tax. An appropriate decision will be entered. This concludes the Court's findings of fact and opinion in this case. Court is adjourned. THE CLERK: All rise. (Whereupon, at 4:28 p.m., the bench opinion in the above-entitled matter was concluded.) // // Heritage Reporting Corporation (202) 628-4888 10 Certificate of Transcriber and Proofreader CASE NAME: Ronald Bonfilio v. Commissioner DoCKET NUMBER: 14716-07 We, the undersigned, do hereby certify that the foregoing pages, numbers __... through ___, 1 9 • inclusive, are the true, accurate and complete transcript - prepared from the tape made by electronic recording by Gabriel Gheorghiu February 3, 2011 bef ore the United States Tax Court at its session in Washington, D.C. , in accordance with the applicable .provisions of the current verbatim reporting contract of the court, and have verified the accuracy of the transcript by comparing the printed transcript against the verbal recording. Karen Levandowski (signature of Transcriber) - 2/13/11 (Print-Transcriber Name). (Date) Rebecca McCrary (signature of Proofreader) (Print-Proofreader Name) - 2/14/11 (Date) Heritage Reporting Corporation (202) 628-4888