TAX COURT OPINION

Case: Tomasz Koziej
Docket Number: 28875-08S
Judge: Dean
Opinion Type: summary
Filed: 04/12/2010
Pages: 9

CLC T .C . Summary Opinion 2010-4 1 UNITED STATES TAX COUR T TOMASZ KOZIEJ, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 28875-08S . Filed April 12, 2010 . Tomasz Koziej, pro se . Michael T . Shelton , for respondent . DEAN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed . Pursuant to section 7463(b),', the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other ; case . Unless otherwise indicated, subsequent section reference s are to the Internal Revenue Code in effect for the years i n SERVED Apr 12 2010 issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . Respondent determined the following deficiencie s in, and the following accuracy-related penalties under section 6662 (a) on, petitioner's Federal income taxes : Year Deficiency Sec . 6662(a) Accuracy-Related Penalt y 2004 $813 $162 .60 2005 3,492 698 .4 0 The issues for decision' are whether : (1) Amounts deposited in petitioner's bank accounts in excess of his reported income for 2004 and 2005 constitute income ; and (2) petitioner is liable for accuracy-related penalties under section 6662(a) for 2004 and 2005 . Background Some of the facts have been stipulated and are so found . The stipulation of facts, the stipulation of settled issues, and the attached exhibits are incorporated herein by reference . When petitioner filed his petition, he resided in Illinois . Petitioner timely filed his 2004 and 2005 Federal income tax returns . He reported total gross receipts of $6,230 for 2004 and $13,550 for 2005 . 'Petitioner's eligibility for the earned income credit is a computational adjustment to be determined consistent with this opinion . During the years at issue petitioner worked for a construction business . In a notice of deficiency respondent determined that petitioner failed to report income of $3,831 for 2004 and $14,454 for 2005 . Respondent further determined that petitioner was liable for accuracy-related penalties of $162 .60 and $6 58 .40 for 2004 and 2005, respectively . Petitioner agrees that the disputed amounts were deposited in his bank accounts in 2004 and 2005 and not reported as income . Petitioner asserts, however, that these deposits constituted loan repayments and are thus nontaxable . Discussio n I . Evidentiary Matter s In general, the Court conducts trials in accordance with the rules of evidence for trials without a jury in the U .S . District Court for the .District .of Columbia, and accordingly, follows the Federal Rules of Evidence . Sec . 7453 ; Rule 143(a) ; Clough v . Commissioner , 119 T .C . 183, 188 (2002) . However, Rule 174(b') carves out an exception for trials of small tax cases under the provisions of section 7463(a) . Under Rule 174(b), the Court conducts small tax cases as informally as possible and consequently may admit any evidence that the Court deems to have probative value . Schwartz v . Commissioner , 128 T .C . 6, 7 (2007) . 4 - I Respondent objects to several documents proffered by petitioner, arguing that they constitute inadmissible hearsay . A . . Statement s Petitioner proffered two statements from friends averring that they . had paid petitioner money in 2004 and 2005 as repayments of previous loans . There is no corroborating evidence, however, beyond petitioner's testimony, that the payments petitioner received constituted loan payments . In addition, petitioner did not present any evidence that he entered into a loan agreement with any of the parties, or that the parties intended to repay him the "lent" funds . Therefore, the Court will sustain respondent's objections . See Rule 174(b) . B . Check s Petitioner proffered copies of the front of two checks made out to "cash" . Petitioner alleges that these checks were repayments of loans, he previously made to those parties . There is no evidence, other than petitioner's own testimony, that the checks constituted loan payments as opposed to income . In addition, there is no evidence that these checks were actually presented for payment . Because there is no indication that these checks constituted loan payments or that they were presented for payment, sufficient grounds exist to sustain respondent's evidentiary objection . II . Burden of Proo f - 5 Generally, the Commissioner's determinations are presumed correct, and the taxpayer bears the burden of proving that those . determinations are erroneous .2 Rule 142(a) ; see INDOPCO, Inc . v . Commissioner , 503 U .S . 79, 84 (1992) ; Welch v . Helvering, 29 0 U .S . 111, 115 (1933) . III . Unreported Incom e Respondent determined deficiencies in petitioner's Federal income taxes for 2004 and 2005 by using the bank deposits method . "The bank deposits method assumes that all money deposite d in a taxpayer's bank account during a given period constitutes taxable income, but the Government must take into account any nontaxable source or deductible expense of which it has knowledge ." Clayton v . Commissioner , 102 T .C . 632, 645-646 (1994) . "The use of the bank deposit method for computing income has long been sanctioned by the courts ." Estate of Mason v . Commissioner , 64 T .C . 651, 656 (1975) (and cases cited thereat), affd . 566 F .2d 2 (6th Cir . 1977) . "A bank 'deposit is prima facie evidence of income and respondent need not prove a likely source of that income ." Tokarski v . Commissioner , 87 T .C . 74, 77 (1986 ) 'Petitioner has not claimed or shown that he meets the requirements under sec . 7491(a) to shift the burden of proof to respondent as to any factual issue "relating to his liability for tax . _ 6 _ (citing Estate of Mason v . Commissioner , supra at 656-657) . The burden of showing duplications is on the taxpayer . Zarnow v . Commissioner , 48 T .C . 213, 216 (1967) . Petitioner reported gross receipts of $6,230 for 2004 . That year deposits in his bank accounts totaled $41,061 .17 . Respondent determined that $31,000 of petitioner's unreported deposits in 2004 was not income . For 2005 petitioner reported gross receipts of $13,550 . Respondent calculated that deposits totaled $202,127 .09 in petitioner's bank-accounts in 2005 but found that $174,123 .49 of the unreported deposits was not income . Petitioner does not contest that unreported amounts of $3,831 in 2004 and $14,454 in,2005, as determined by respondent, were deposited into his bank accounts . Petitioner asserts that these amounts constituted loan payments, nontaxable returns of capital, see, e .'g ., Franks v . Commissioner , T .C . Memo . 1990-189, and are thus nontaxable . Petitioner testified that he received loan payments from friends in 2004 and 2005 .3 He provided multiple bank statements to corroborate his testimony . The . bank statements, however, are uninformative . The statements simply provide the date .and th e 3Marian Czarnik also testified that he made a loan payment to petitioner in the amount of $3,800 in 2004 . There is no corroborating evidence,khowever, that petitioner lent any money to Mr . Czarnik or that Mr . Czarnik's payment to petitioner constituted a Than payment . amount of each deposit, and the subject indicates "deposit" . ' The statements do not indicate the-source of any of the deposite d funds . Furthermore, petitioner did not present evidence that h executed or entered into a loan agreement with any of th e parties . Such agreement may demonstrate that petitioner intende d to lend money and that the parties .intended to=repay petitioner the lent funds . On the basis of the foregoing, the Court is unable to find that the unreported income is attributable to loan payments and is nontaxable . Accordingly, respondent's determinations are sustained . IV . Accuracy-Related Penalt y Section 6662(a) and .(b)(1) and (2) imposes a 20-percent accuracy-related penalty for any portion of an . underpayment that is attributable to : (1) Negligence or disregard of rules or regulations ;' or (2) a substantial understatement of income tax . ' Section 6662(c) defines "negligence" to include "any failure to-make a reasonable attempt to comply with the provisions of this title," and "disregard" to-include "any careless, reckless, or intentional disregard ." Negligence also includes any failur e 4Several statements contained indecipherable codes . 5Because' the Court finds that petitioner was negligent or disregarded rules . or regulations, the Court need not discuss whether there is a substantial understatement of income tax . sec . 6662(b) . See by the taxpayer to keep adequate books and records or to substantiate items properly . Sec . 1 .6662-3(b)(1), Income Tax Regs . The Commissioner bears the burden of production with respect to the applicability of an accuracy-related penalty determined in a notice of deficiency . See sec . 7491(c) . In order to meet the burden of production under section 7491(c), the Commissioner need only make a prima facie case that imposition of the penalty or addition to tax is appropriate . Higbee v . Commissioner , 116 T .C . 438, 446 (2001) Once he has met his burden, the burden of proof is upon the taxpayer to .prove that the accuracy-related penalty does not apply because of reasonable cause, substantial authority, or the like . See secs . 6662(d)(2)(B), 6664(c) ; Higbee v . Commissioner , supra at 448 . Respondent determined accuracy-related penalties of $162 .60 and $698 .40 for 2004 and 2005, respectively . Petitioner's tax liabilities for 2004 and 2005 are attributable to his failure to report as income his claimed receipt of loan payments . Petitioner did not keep the records required by the Code to substantiate receipt of loan payments . Failure to keep adequate records is evidence not only of negligence, but also of intentional disregard of regulations . See sec . 1 .6662-3(b)(1) and (2), Income Tax Regs . ; see also Magnon v . Commissioner , 73 T .C . 980, 1008 (1980) . Petitioner has failed to demonstrate that he was not negligent, and the Court finds that respondent has met his burden of production under section 7491(c) . An accuracy-related penalty is not imposed on any portion of the underpayment as to which the taxpayer acted with reasonable cause and in good faith . Sec . 6664(c)(1) . Section 1 .6664- 4(b)(1), Income Tax Regs ., incorporates a facts and circumstances test to determine whether the taxpayer acted with reasonable cause and in good faith . The most important factor is the extent of the taxpayer's effort to assess his proper tax liability . Id . Petitioner failed to present any evidence or argument as to why he should not be subject to the accuracy-related penalties for 2004 and 2005 . Accordingly, respondent's determinations of accuracy-related penalties for 2004 and 2005 are sustained . To reflect the foregoing, Decision will be entere d for respondent .