TAX COURT OPINION

Case: John Thomas Nelson
Docket Number: 7900-12S
Judge: Goeke
Opinion Type: bench
Filed: 06/28/2013
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 JOHN THOMAS NELSON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 7900-12S. ) ) ) ) ORDE R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk ofthe Court shall transmit herewith to petitioner and to respondent a copy ofthe pages ofthe transcript ofthe trial in the above case before Judge Joseph Robert Goeke at Anchorage, Alaska, containing his oral findings offact 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) Joseph Robert Goeke Judge Dated: Washington, D.C. June 28, 2013 SERVED JUL - 2 200 Capital Reporting Company 3 Bench Opinion by Judge Joseph R. Goeke June 5, 2013 John Thomas Nelson v. Commissioner Docket No. 7900-12S '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. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This case was heard pursuant to the provisions of section 7463 in effect when the petition was filed. Pursuant to section 7463(b) the decision to be entered is not reviewable by any other court. This opinion is rendered pursuant to section 7459(b) and Rule 152 of the Tax Court Rules of Practice and Procedure. Section references are to the Internal Revenue Code and Rule references are to the Tax Court Rules of Practice and Procedure. This case is before the Court based upon our jurisdiction to review deficiencies following the timely filing of a petition after respondent has issued a Notice of Deficiency. In the present case, respondent issued a Notice of Deficiency to the petitioner for the year 2009 involving federal 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 4 1 2 3 4 5 tax in the amount of $3,060.00. Respondent also asserted additions to tax under sections 6651(a) (1) and (a) (2) in the amounts of $688.50 and $321.30 respectively. The record at trial consisted of a 6 Stipulation of Facts and two other Exhibits offered 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 by respondent, which are certified Internal Revenue Service records, and also the testimony of the petitioner. The issues before the Court concern whether petitioner is taxable for nonemployee compensation he received from the Matanuska Valley Credit Union in the amount of $14,196.00 and also whether petitioner is taxable for miscellaneous income from the State of Alaska, Department of Revenue, Permanent Fund, constituting dividends from the Permanent Fund in the amount of $4,574.00. The issues also involve whether petitioner is liable for self employment tax, whether petiti.oner is entitled to deductions greater than the standard deduction and exemptions greater than those allowed by respondent. In addition, as previously stated, the additions to tax are in dispute. At the time of the filing of the petition the petitioner was a resident of the state of Alaska. In 2009 petitioner received the income in question 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 from the Matanuska Valley Credit Union as a property inspector. He freely admitted his receipt of this income which was reported by the credit union as nonemployee compensation. Petitioner also received $3,269.00 in 2009 from the State of Alaska, Department of Revenue, as a permanent fund dividend. In addition, he received $1,305.00 as amounts paid on his behalf by the State of Alaska, Department of Revenue. This $1,305.00 was also a permanent fund dividend. Petitioner did not file a federal income tax return form 1040 for 2009. He made no estimated tax payments for 2009. At trial, accepting the facts as described, petitioner testified primarily that he believed he was not subject to federal income tax because of his interpretation of section 861. Petitioner's argument relative to section 861 is not novel. It has been addressed previously on many occasions by the court. This excerpt from Buchhart (ph) v. Commissioner, T.C. Memo. 2010-147, describes appropriately the merits of petitioner's argument. Petitioner argues that the source rules of section 861 and its accompanying regulations exclude his pension and annuity income from taxation. We have repeatedly held this argument to be frivolous and groundless. See, Takaba v. 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 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Commissioner, 119 T.C. 285, 294-295 (2009); Williams v. Commissioner, 114 T.C. 136, 138-139 (2000); Olson v. Commissioner, T.C. Memo 2004-234; Dashiell v. Commissioner, T.C. Memo 2004-210.. Section 61 includes in gross income, "all income from whatever source derived". Section 61 thus includes all sources of income. It does not cross reference section 861 or its accompanying regulations ln any way. Dashiell v. Commissioner, supra, ("Section 61 is not affected by section 1.861- 8 (f) (1), income tax regs.") Petitioner's section 861 argument is as groundless as similar arguments based on section 861 made by taxpayers beforehand. We believe for the same reasons discussed in the quote from Buchhart (ph) v. Commissioner 16 petitioner's argument is groundless and he is 17 18 19 20 21 22 therefore taxable on the income in question. We now turn to the additions to tax. But first we discuss whether petitioner is taxable on the Alaska permanent fund dividend, which he in passing indicated was not subject to taxation. Petitioner's position in this regard is incorrect. The Ninth 23 Circuit Court of Appeals has held that such dividends 24 25 are taxable. Greisen v. United States, 831 F.2d 916, 920 (9th Cir. 1987). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Turning to the additions to tax. Section 6651(a) (1) provides for an addition to tax when a taxpayer fails to timely file a federal income tax return unless the taxpayer can show that the failure to file was reasonable or due to reasonable cause. The burden is on the taxpayer to show such reasonable cause. Respondent has the burden to establish that in fact the return was not filed and respondent has carried that burden in the present case. Respondent having established that the income tax return was not filed the burden shifts to petitioner to establish reasonable cause. See, Rule 142 of the Tax Court Rules of Practice and Procedure. In the present case petitioner has offered no evidence establishing that he had reasonable cause for his failure to file a federal income tax return for 2009. We have previously indicated that his argument as to why his income was exempt is frivolous and is not sufficient to establish reasonable cause. 20 Petitioner did not consult with any professionals 21 22 23 24 25 regarding his argument and although we believe he earnestly made the argument it is not the basis on which we can forego the addition to tax under section 6651(a) (1). Section 6651(a) (2) provides an addition to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 tax when a taxpayer fails to timely pay his tax liability. In the present case respondent has established that a substitute for return was filed 4 which established a tax liability of the petitioner for 2009. Petitioner having failed to pay that liability, respondent has carried the burden of establishing the preliminary basis for the addition to tax. Pursuant to respondent's burden of production under section 7491(c), petitioner has not provided any evidence why he had a reasonable cause for his failure to pay the tax and the addition to tax is sustained. Given these findings, a decision will be entered for respondent. This conclude.s the court's oral findings of fact and opinion in this case. (Whereupon, at 9:45 a.m., the above- entitled matter was concluded.) 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