TAX COURT OPINION

Case: Curtis Monhollen & T. J. Lashley a.k.a. Teleena Lashley
Docket Number: 21279-12S
Judge: Whalen
Opinion Type: bench
Filed: 05/16/2013
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 CURTIS MONHOLLEN & T.J. LASHLEY A.K.A. TELEENA LASHLEY, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ) ) ) ORDE R Docket No. 21279-12S 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 proceedings in the above-case before the undersigned at Jacksonville, Florida, containing the oral findings of fact and opinion rendered on May 1, 2013. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. May 16, 2013 SÉRVED MAY 1 6 7013 Capital Reporting Company 1 2 Bench Opinion by Judge Laurence J. Whalen May 1, 2013 3 Curtis Monhollen & T.J. Lashley a.k.a Teleena Lashley 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 v. Commissioner Docket No. 21279-12S I. 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. II. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. In this bench opinion all section references are to the Internal Revenue Code, as amend.ed and in effect for the taxable year in issue, unless stated otherwise, and all Rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to section 7463(b), the decision to be entered in this case ·is not reviewable by any other court, and this bench opinion shall not be treated as precedent for any other case. III. 866.488.D.EPO www.CapitalReportingCompany.com 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 Capital Reporting Company This bench opinion is made pursuant to the ! authority granted by section 7459(b) and Rule 152. IV. Mr. Curtis Monhollen appeared in these proceedings on behalf of petitioners and Christopher A. Pavilonis, Esquire, appeared on behalf of respondent. .In this opinion, references to "petitioner" are references to Mr. Monhollen. V. Respondent determined a tax deficiency of $1, 350, and an addition to tax of $135 pursuant to section 6651(a) (1), in petitioners' Federal income tax for the taxable year 2010 . The tax deficiency is attributable solely to the inclusion of cancellation of indebtedness income of $8,995 in petitioners' taxable income for taxable year 2010. There are two issues for decision. The first is whether petitioner is subject to tax on cancellation of indebtedness income of $8,995 that was reported to respondent by Midland Funding, LLC on Form 1099-C, Cancellation of Debt. The second is whether petitioner is liable for the addition to tax under section 6651(a) (1) of $135, as determined in the notice of deficiency. VI. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 The parties stipulated some of the facts and they submitted a Stipulation of Facts to which three exhibits were attached. Exhibit 3-J, as originally submitted to the Court, is described in paragraph 4 of the stipulation as: 1 2 3 4 5 6 the Form 1099-C issued by Midland Funding "a copy of LLC for 2010 and Midland Funding LLC's payment history associated with petitioner Curtis Monhollen's account." 9 After voir dire by the Court, it appeared that the 10 11 12 13 14 15 16 17 18 19 copy of Form 1099-C issued by Midland Funding LLC was a separate document from the "payment history associated with petitioner Curtis Monhollen's account." Accordingly, on the Court's own motion, the payment history was removed from Exhibit 3-J and was separately numbered as Exhibit 4-R. Exhibit 4-R is further discussed below. The facts recited in the stipulation are so found, and the exhibits attached to the stipulation are taken into evidence, with the exception of 20 Exhibit 4-R. Petitioners resided in the State of 21 22 23 24 25 Florida at the time they filed their petition in this case. On July 26, 1987, petitioner borrowed $14,177.017 from Fifth Third Bank to purchase a 1984 Ford Aerostar vanfzt a used car lot. Shortly after (voM i 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 petitioner had purchased the van, the transmission failed, and he paid approximately $1, 000 to purchase a rebuilt transmission to repair the van. In all, this happened another six times in short order. 5 Finally, he towed the van back to Ohio, and left it 6 with the company from which he had purchased the last 7 8 9 10 11 12 13 14 15 16 17 transmission because it was still under warranty with that company. He then called Fifth Third Bank and he advised the bank that the van was available to be repossessed. After dropping the van at the transmission company in 1988, petitioner made no further payments on his loan from Fifth Third Bank. For approximately six months, he received correspondence from the bank telling him that he remained liable for payment of the loan. In due course, the bank charged off the loan and sold it to Aman Collection Agency. 18 Petitioner, who had moved to Florida, stopped 19 20 21 22 23 24 25 receiving correspondence from the bank and never heard anything further about the matter, until 2012, as discussed below. In May or June of 2012, petitioner received a Notice of Deficiency dated May 29, 2012, in which respondent determined to increase his taxable income for 2012 by cancellation of debt income of $8, 995 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 from Midland Funding LLC. Petitioner and his accountant attempted to contact Midland Funding LLC to investigate the matter, but they were unsuccessful. Petitioner then contacted Fifth Third Bank to see if the matter related to the 1987 automobile loan, described above. In response, he received a letter from the bank dated August 2, 2012, that is attached to the petition. At no time did petitioner receive any correspondence from Midland Funding LLC. Furthermore, petitioner did not receive the Form 1099-C for 2010 that formed the basis of respondent's 14 Notice of Deficiency, prior to these proceedings. 15 16 17 18 19 20 21 The address on that document had not been used by petitioner since 1999. VII. If an information return, such as a Form 1099-C, serves as the basis for the determination of a deficiency, section 6201(d) may apply to shift the burden of production in any court proceeding to the 22. Commissioner. Under section 6201(d), if a taxpayer 23 24 25 asserts a reasonable dispute with respect to the income reported on an information return, and if the taxpayer has fully cooperated with the Commissioner, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 then the Commissioner has the "burden of producing reasonable and probati_ve information concerning such deficiency in addition to such information return". See Kleber v. Commissioner, T.C. Memo. 2011-233; 5 McQuatters v. Commissioner, T.C. Memo. 1998-88. 6 7 In this case, both prerequisites for the application of section 6201(d) are satisfied: 8 Petitioners assert a reasonable dispute concerning 9 the Form 1099-C, and there is no evidence that they 10 11 12 failed to cooperate with respondent. As to the reasonableness of the dispute, petitioners question the basis for the issuance of the Form 1099-C by 13 Midland Funding, LLC, and the validity of the Form 14 15 16 17 1099-C. First, Petitioners never received the subject Form 1099-C prior to these proceedings, and they have never had any correspondence with Midland Funding LLC regarding any debt owed by petitioners. 18 After receiving respondent's notice of deficiency, 19 20 21 22 23 24 25 petitioners attempted to contact Midland Funding LLC. However, their efforts, and the efforts of their accountant, to contact that company were unsuccessful. In fact, petitioners point out that the address on the Form 1099-C is an address that was last used by Mr. Monhollen in 1999. Second, petitioners contacted the Fifth 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 Third Bank in Ohio to inquire whether the Form 1099-C and the notice of deficiency had anything to do with an automobile loan on which Mr. Monhollen had defaulted circa 1988. In response, the Fifth Third Bank confirmed that Mr. Monhollen's loan had originated on July 26, 1987, in the amount of $14,177.07, and that the loan had been charged off by the bank and sold to Aman Collection Agency. The bank's response does not mention Midland Funding LLC, or explain the role of that company, if any, in the transaction. Third, even assuming that Midland Funding LLC, had some connection to Mr. Monhollen's loan from 14 Fifth Third Bank, he made no payment on the loan 15 16 17 18 19 20 21 22 23 24 25 since 1988, or so, when he made arrangements to deliver the van to the bank for repossession. The period between Mr. Monhollen's first default on the loan, circa 1988, and the issuance of the Form 1099-C in 2010, is a period of approximately 22 years. It is well past the 15-year period of limitations that applies, according to respondent, in the State of Ohio to actions to enforce the loan. Ohio Revised Code § 2305.06. Given these facts, it is certainly reasonable to question the validity of the Form 1099- C. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 We hold that section 6201(d) applies, and that the burden is shifted to respondent to produce reasonable and probative information concerning the subject deficiency, in addition to the Form 1099-C issued by Midland. To satisfy that burden, respondent offered the document described in the 7 Stipulation of Facts as "Midland Funding LLC's 8 payment history associated with petitioner Curtis 9 Monhollen's account". This document was marked as 10 Exhibit 4-R, as discussed above. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The Court found Exhibit 4-R to be hearsay, and it ruled no exception to the hearsay rule was C established. Indeed, there was nothing to show either the source of information depicted on the document nor the method or circumstances of its preparation. See Rule 803(6) of the Federal Rules of Evidence. Furthermore, it is evident that Exhibit 4- R is not comprehensible without additional information. For example, if, as suggested by respondent's attorney, the document showed monthly payments of $100, allocated to three different codes or accounts, why would the company discharge the debt when, as shown by the document, payments had been made sine 2007? For these reasons, the Court ruled that it would not receive Exhibit 4-R into evidence. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 The Court's ruling that Exhibit 4-R is not admissible leaves respondent with nothing in the record to satisfy its burden of production under section 6201(d) of producing reasonable and probative information in support of the deficiency and the Form 1099-C. Thus, there is nothing in the record to show that the cancellation of indebtedness income was properly and accurately reported on the Form 1099-C for 2010, or to support the determination in the notice of deficiency. As a result, we do not sustain the adjustment in the subject notice of deficiency which increased petitioners' taxable income for 2010 13. by cancellation of debt income of $8,995, and we 14 15 16 17 18 19 20 21 22 23 24 25 decide that issue for petitioner. VIII. The second issue to be decided is whether petitioner is liable for the addition to tax under section 6651(a) (1), as determined in the notice of deficiency. As to this issue, it is established in the Stipulation of Facts that petitioners filed their return for taxable year 2010 on May 20, 2011, less than 60 days after the date prescribed for filing. In this situation, section 6651(a) imposes a penalty in an amount "not less than the lesser of $135 or 100 percent of the amount required to be shown as tax on 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company such return. " Accordingly, the addition to tax determined in the notice of deficiency 1s correct, and we sustain respondent's determination of this 12 issue. IX. In order to give effect to our disposition of the disputed issue, decision will be entered under Rule 155.. X. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 4:30 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