TAX COURT OPINION

Case: Ronald E. Byers
Docket Number: 15841-11
Judge: Buch
Opinion Type: bench
Filed: 05/17/2013
Pages: 19

UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD E. BYERS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 15841-11. Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit with this order to both petitioner and respondent a copy of the transcript of findings of session at St. Paul, Minnesota. fact and opinion that was rendered at the pages of in this case that contain the oral the trial the trial In accordance with the oral fact and opinion, a decision will be entered for respondent as to the deficiency and additions to tax under Sections 6651(a) (1) and 6654 but for petitioner as to the addition to tax under Section 6651(a) (2). findings of (Signed) Ronald L. Buch Judge Dated: Washington, D.C. May 17, 2013 SERVED gY 2 0 20ß Capital Reporting Company 3 1 Bench Opinion by Judge Ronald L. Buch 2 April 24, 2013 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Ronald E. Byers v. Commissioner Docket No. 15841-11 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. These oral findings of fact and opinion shall not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax- Court Rules of Practice and Procedure. All section references that follow refer to the Internal Revenue Code in effect during the years at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Respondent determined a deficiency of $9,666 in Mr. Byers 2003 Federal income tax and additions to tax under sections 6651(a) (1) and (2) and 6654. The issues for decision are: (1) whether 22 Mr. Byers was an employee or an independent 23 24 25 contractor, (2) the amount of income petitioner received in 2003, and (3) whether petitioner is liable for the additions to tax under section 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 6651(a) (1), 6651(a) (2), or 6654. An additional issue is whether Mr. Byers should be held liable for a penalty under section 6673 for instituting or 4 maintaining this proceeding primarily for purposes of 5 6 7 8 9 delay or for asserting frivolous arguments. It should be said up front that this proceeding is principally focused on the question of how the facts in 2003 differed from the surrounding years. You see, Mr. Byers is not a stranger to this 10 Court. See Byers v. Commissioner, T.C. Memo. 2007- 11 12 13 14 15 16 331, aff'd, 351 Fed. Appx. 161 (8th Cir. 2009), cert. denied 131 S.Ct. 79 (2010); see also, Byers v. Commissioner, T.C. Dkt. No. 22629-07 (June 11, 2010) (bench opinion), aff'd in part, rev'd in part, and remanded 420 Fed. Appx. 658 (8th Cir. 2011); Byers v. Commissioner, T.C. Memo. 2012-27, appeal filed (8th 17 Cir. Aug. 9, 2012). 18 19 20 21 22 23 24 25 In Byers v. Commissioner, T.C. Memo. 2007- 331 (Byers I), the Court found that Mr. Byers was an independent contractor for 1999 through 2002 and that the amounts Edina paid to Conrad on his behalf, were not withholdings. In Byers v. Commissioner, T.C. Dkt. No. 22629-07 (June 11, 2010) (bench opinion), which we will refer to as Byers II, the Court found that Mr. Byers was an independent contractor for 2004 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 and again that the amounts Edina paid to Conrad on his behalf were not withholdings because there were no changes in material fact from those presented in the earlier case. As a result, the Court found that 5 Mr. Byers was collaterally estopped from continuing 6 7 to argue that he was an employee of Edina in 2004 and found in respondent's favor on that issue. [bünáf/f// 8 9.7] On February 20, 2013, respondent filed a motion 9 for summary judgment in this case, asserting that Mr. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Byers was also collaterally estopped from arguing that he was an employee of Edina in 2003. On February 22, 2013, the Court issued an order directing Mr. Byers to file a response wherein he should address whether the facts concerning his employment relationship were different in 2003 than in years 1999 through 2002 or 2004 and if so, how. In his objection, Mr. Byers alleged that he was only a truck driver for 2.5 months of 2003 and for the remaining 9.5 months, he trained new truck drivers. Mr. Byers further alleged that while he was training new truck drivers he: (1) was paid an hourly wage plus a percentage of the earnings of the new driver, (2) had paid vacation days, (3) reported directly to Mr. Olsen and that he had little or no contact with Mr. Bartsh, and (4) followed Mr. Olsen's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company I 6 1 instructions and taught the new drivers the "Edina 2 Courier's way". Petitioner also alleged that the 3 4 5 truck lease agreement was "dormant and not in effect from March to mid-December 2003", and that amounts subtracted from his earnings were in fact 6 withholdings. As a result, the Court denied 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 respondent's motion for summary judgment. Background At the time the petition was filed, Mr. Byers resided in Minnesota. During 2003, Mr. Byers worked for Edina Couriers, LLC (Edina) as a truck driver and was paid twice per month. Truck drivers for Edina were required to provide their own truck. Edina did not reimburse truck drivers for any expenses for insurance, maintenance, or fuel for the trucks. Mr. Byers signed a "Contractor Operating Agreement" wherein Edina agreed to pay petitioner 70% of the gross amounts Edina billed customers for petitioner's deliveries. Since Mr. Byers did not own a truck, he leased a truck from Conrad Companies, Inc. (Conrad). Mr. Byers signed a truck lease with Conrad wherein Conrad would pay for insurance, 25 maintenance, and fuel of the truck and in return, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 petitioner would pay Conrad 38.5% of the amount received by Edina, which translates to approximately 55% of the amount Edina paid to petitioner. Since Edina and Conrad were related companies, before issuing a check to Mr. Byers, Edina would pay a portion of his earnings to Conrad to satisfy Mr. Byers's obligations to Conrad under the truck lease agreement. Twice a month, Edina provided to Mr. Byers settlement reports reflecting gross earnings and amounts paid over to Conrad and would then issue petitioner a check for the remainder. How this financial arrangement operated in practice can be gleaned from Exhibits 17 and 21. Exhibit 17 shows the amounts billed to Edina's customers. From that, it shows the drivers share and the rental payment. That amount is also shown on Exhibit 21, which shows the gross amount creditable to the driver less the rental payment, and showing the net payment to the driver. Mr. Byers appears to challenge the math used to reach the numbers shown on these respective 22 written reports. The Court's own computations show 23 that the numbers and percentages conform to the 24 written agreements. 25 For example, Exhibit 17-J at page 5 shows a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 . I 1 2 3 4 5 6 7 8 9 10 11 12 total book of $5,294.44. The net settlement is $3,706.12, which is 70% of the total book. That report shows a truck rental of $2,041.61, which is 38.5% of the total book in conformity with the percentage shown on Exhibit 8. These numbers then conform to the accounts payable check history detail contained in Exhibit 21. There is a mismatch of one week. Apparently because the settlement report shows the period during which the work was performed whereas the check history detail shows when the payment was made. Notably the check history detail conforms to the check itself, which appears at 13 Exhibit 16, page 20. 14 15 16 17 18 Mr. Byers also trained new truck drivers. This training was also called a "ride-along" where a new driver and Mr. Byers would both be in the vehicle. Although Mr. Byers trained new truck drivers in previous years, he did so informally 19 without a written agreement. In 2003, Edina's 20 21 22 23 24 25 records reflect six entries for training and six corresponding payments of $25. It appears that his training in 2003 did not differ from that in the prior or subsequent years. Mr. Byers testified that he was injured in roughly March of 2003, preventing him from driving a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 truck because his arm was in a sling. Mr. Byers identified this as the impetus for the change in his employment relationship. During most of 2003, Mr. Byers says, he was a trainer. Mr. Bartsh, who oversaw the operations at the time, has no recollection of this injury. He recalls Mr. Byers having taken some time off for injury. Mr. Bartsh's recollection is corroborated by the records. In 9 March 2003, there is a noticeable drop in Mr. Byers's 10 earnings for a single pay period. Likewise, Mr. 11 Olsen testified he did not recall Mr. Byers' injury. 12 Edina issued to Mr. Byers a Form 1099-Misc, 13 Miscellaneous Income, reflecting non-employee 14 15 16 17 18 19 compensation of $85,920.33. Edina's records reflect that it remitted payments to Conrad on petitioner's behalf of $46,285.87 and that it issued checks to petitioner totaling $39,634.46. Mr. Byers did not file a 2003 Federal income tax return. On March 28, 2011, respondent issued a 20 Notice of Deficiency to Mr. Byers. On the Form 5278, 21 22 23 24 25 Statement-Income Tax Changes, respondent characterized the amount reported as non-employee compensation as self-employment income and allowed the full amount paid to Conrad as a business expense. On July 5, 2011, Mr. Byers timely filed a petition 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 disputing the notice of deficiency. In the amended petition, Mr. Byers asserts among other things, that he was an employee and not an independent contractor subject to self-employment tax. Employee vs. Independent Contractor Collateral estoppel exists for the "dual purpose of protecting litigants from the burden of relitigating an identical issue and of promoting judicial economy by preventing unnecessary or redundant litigation." Meier v. Commissioner, 91 T.C. 273, 282 (1988); see also Montana v. United States, 440 U.S. 147, 153- 154 (1979); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326(1979). In general, the doctrine of collateral estoppel forecloses relitigation of issues actually litigated and necessarily decided in a prior suit. Parklane Hosiery Co. v. Shore, 439 U.S at 326 n.5; Meier v. Commissioner, 440 U.S. at 282; Peck v. Commissioner, 90 T.C. 162, 166 (1988), aff'd. 904 F.2d 525 (9th 1 2 3 4 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Cir. 1990). This Court, expanding upon three factors 23 24 25 identified by the Supreme Court in Montana, has set forth five prerequisites necessary for the application in factual contexts of collateral 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 estoppel: (1) The issue in the second suit must be identical in all respects with the one decided in the first suit. (2) There must be a final judgment rendered by a court of competent jurisdiction. (3) Collateral estoppel may be invoked against parties and their privies to the prior judgment. (4) The parties must actually have litigated the issues and the resolution of these issues must have been essential to the prior decision. (5) The controlling facts and applicable legal rules must remain unchanged from those in the prior litigation. All five requirements are satisfied in the instant case: (1) The issues of whether Mr. Byers is an independent contractor and whether amounts subtracted from petitioner's gross earnings and paid over to Conrad pursuant to the truck lease agreement are withholdings are identical to the issues litigated in Byers I and Byers II; (2) final judgment was rendered in both cases; (3) the parties in Byers I and Byers II are identical to those in the instant 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 12 1 2 3 4 5 6 case; (4) the parties litigated the issues and the resolution of those issues was essential to the decision in both Byers I and Byers II; and (5) the controlling facts and applicable legal rules concerning the issues in the instant case are unchanged from those in Byers I and Byers II. 7 Accordingly, the doctrine of collateral estoppel 8 9 10 11 12 13 14 15 16 17 18 19 20 applies, and Mr. Byers is collaterally estopped from challenging his independent contractor status or that the amounts paid to Conrad on his behalf were truck lease payments and not withholdings. The Court provided Mr. Byers ample opportunity to distinguish 2003 from the surrounding years. The only evidence of any difference is Mr. Byers testimony. The Court finds that testimony not to be credible. First, there is nothing corroborating that testimony. But moreover, Mr. Byers testimony is contradicted by that of Mr. Bartsh and Mr. Olsen. Also, the documents put in the record concerning Mr. Byers's employment in 2003 show no 21 meaningful difference between 2003 and the 22 23 surrounding years, thus contradicting his testimony. And indeed, much of Mr. Byers's questioning of 24 witnesses drew out the similarities between 2003 and 25 the surrounding years, and none of it brought out any 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 differences. Amount of Income Mr. Byers alleged the amount Edina reported on the Form 1099-Misc. was incorrect. In any Court proceeding where a taxpayer asserts a reasonable dispute with respect to income reported on a third- party information return and fully cooperates with the IRS, "the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return." Sec. 6201(d). Full cooperation requires informing the IRS of the dispute within a reasonable time. H. Rept. 104-506, at 36 (1996), 1996-3 C.B. 49, 84. In addition, a taxpayer must provide timely "access to and inspection of all 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 witnesses, information, and documents within the 19 20 21 22 23 24 25 control of the taxpayer". Sec. 6201(d) . Mr. Byers has shown no error in the determination of income. See sec. 6201(d). We infer from his failure to produce evidence that he has none or that it would be unfavorable to his claims. See Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), aff'd. 162 F.2d 513 (10th Cir.1947). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company Therefore, Mr. Byers is liable for the deficiency in tax as asserted by respondent in the notice of deficiency. 14 Failure to Timely File Addition to Tax Section 6651(a) (1) imposes an addition to tax of 5% per month of the amount of tax required to be shown on the return, not to exceed 25%, for failure to timely file a return. The addition to tax under section 6651(a) (1) is imposed unless the taxpayer establishes that the failure to timely file was due to reasonable cause and not due to willful neglect. Section 7491(c) provides that the Commissioner has the burden of production in any 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Court proceeding with respect to liability for an 17 18 19 20 21 22 addition to tax. The record reflects that Mr. Byers did not file his 2003 Federal income tax return. Mr. Byers gave no evidence contradicting those records. The record does not establish that petitioner's failure to timely file his 2003 Federal income tax return was due to reasonable cause and not 23 willful neglect. Indeed, Mr. Byers stated from the 24 witness stand his erroneous view of when a return is 25 required to be filed. Section 6012 (a) (1) provides 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 that an individual with income in excess of the standard deduction plus the exemption amount must file a return. This rule applies regardless of whether there is withholding in excess of the amount of the tax liability. Mr. Byers stated position on this issue has no basis in law or fact, and therefore, he is liable for the section 6651(a) (1) addition to tax. Failure to Timely Pay Addition to Tax Section 6651(a) (2) imposes an addition to tax for failure to pay the amount shown as tax on the taxpayer's return on or before the date prescribed unless the taxpayer can establish that the failure is due to reasonable cause and not due to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 willful neglect. The Commissioner's burden of 18 19 20 21 22 23 24 25 production with respect to the section 6651(a) (2) addition to tax requires that the Commissioner introduce evidence that a return showing the taxpayer's tax liability was filed for the year in question. In a case such as this where the taxpayer did not file a return, the Commissioner must introduce evidence that a substitute for return satisfying the requirements of section 6020 (b) was 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 made. See Wheeler v. Commissioner, 127 T.C. 200, 210 16 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008), see also, Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). Respondent did not do so. Because the record does not contain evidence that petitioner failed to pay tax shown on a return for 2003, the Court concluded and indeed Respondent conceded that the burden of production is not met with respect to the section 6651(a) (2) addition to tax. Therefore, petitioner is not liable for the section 6651(a) (2) addition to tax. Failure to Pay Estimated Tax Addition to Tax Section 6654 imposes an addition to tax on an individual taxpayer who underpays his estimated tax. The addition to tax is calculated with reference to four required installment payments of the taxpayer's estimated tax liability. Sec. 6654 (c) (1). Each required installment of estimated tax is equal to 25 percent of the required annual payment. Sec. 6654 (d) (1) (A). The required annual payment is equal to the lesser of (1) 90% of the tax shown on the individual's return for that year (or, if no return is filed, 90% of his or her tax for such year), or (2) if the individual filed a return for the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 4 5 6 immediately preceding taxable year, 100% of the tax shown on that return. Sec. 6654 (d) (1) (B). Thus, respondent's burden of production under section 7491(c) requires respondent to produce evidence that the taxpayer had a required annual payment under section 6654 (d), and in order to do so respondent 7 must demonstrate the tax shown on the taxpayer's 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 return for the preceding year, unless he can show that the taxpayer did not file a return for that preceding year. Wheeler v. Commissioner, 127 T.C. at 212, see also, Duma v. Commissioner, T.C. Memo. 2009- 304. We take judicial notice that petitioner did not file a 2002 tax return, as evidenced by the findings of the Court in Byers I. Fed. R. Evid. 201. As a result, petitioner had a required annual payment of 90% and he did not pay that amount for 2003. Therefore, petitioner is liable for the section 6654 addition to tax. Sanction under Section 6673 Because the issues surrounding Mr. Byers employment status have repeatedly been litigated, the Court intended that the trial be limited to bringing out those differences between Mr. Byers professional 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 relationship with Edina Couriers in 2003 versus other years. Mr. Byers appears to passionately believe that his status as an independent contractor is incorrect, and spent much of the trial time focusing on that issue and drawing out similarities between 2003 and the surrounding years. Mr. Byers testimony as to differences was not credible. And much of the evidence presented at trial contradicts the 9 Declaration that he submitted to overcome the Motion 10 11 12 13 for Summary Judgment. This phrase "not credible" does not adequately describe Mr. Byers testimony. It was not corroborated by anything, and was contradicted repeatedly. Mr. Byers wasted the 14 Court's time, keeping Court personnel here past 8:00 15 16 17 18 19 20 21 22 23 24 25 pm as he asked questions that were beyond the appropriate scope of this trial. Mr. Byer's issued a subpoena to Nick Olsen that is best characterized as vexatious, asking him to come as one of the owners of Edina Couriers to appear in Court and bring reams of paper that go beyond the scope of this case. Although the Court instructed the witness to appear, the Court orally relieved the witness of the requirement to produce documents. The Court also notes that Mr. Olsen received a worker classification determination from the IRS as to Mr. Byers, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 1 identifying Mr. Byers as an independent contractor. 2 Moreover, Mr. Olsen provided to the Court a 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Memorandum and Order from the US District Court for the District of Minnesota, docket no. 11-87, dated November 17, 2011. That Order shows that Mr. Byers tried to overcome collateral estoppel with allegations of differences between 2002 and subsequent years. Slip op. at p. 3. Notably, that opinion recites the reasons stated by Mr. Byers as to how his employment relationship supposedly changed after 2002, and there is no reference to an injured arm preventing him from driving or his role as a trainer. The Eighth Circuit affirmed the district court in 2012. 2012-2 USTC P 50,457. Mr. Beyer's arguments have been repeatedly rejected by this Court and the Court of Appeals for the Eighth Circuit. Pursuant to section 6673(a) (1), the Court may impose a penalty not in excess of $25,000 against a petitioner when it appears that he has instituted or maintained his case primarily for delay. See Pierson v. Commissioner, 115 T.C. 576, 581 (2000). The Court concludes that petitioner has used these proceedings primarily for delay and to advance frivolous and groundless arguments. The 25 Court also notes that Mr. Byers was cautioned in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 20 Byers II about asserting previously rejected arguments. Accordingly, the Court will impose a penalty under section 6673. 1 2 3 4 5 Conclusion 6 7 8 9 10 11 12 13 14 15 16 17 18 The Court concludes that Mr. Byers is liable for the deficiency of $9,666, the addition to tax under section 6651(a) (1) of $2,174.85, and the addition to tax under section 6654 of $249.39 for the taxable year 2003. Mr. Byers is not liable for the addition to tax under section 6651(a) (2) for the taxable year 2003. The Court also imposes a penalty of $5000 for instituting and maintaining this proceeding primarily for the purpose of delay. We have considered all of the parties' arguments, and, to the extent not addressed herein, we conclude the arguments to be moot, irrelevant, or 19 without merit. 20 21 22 23 24 25 With that this proceeding is concluded. (Whereupon, at 11:10a.m. the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com