TAX COURT OPINION

Case: William A. Llanos
Docket Number: 9890-18
Judge: Kerrigan
Opinion Type: bench
Filed: 10/15/2019
Pages: 9

23 UNITED STATES TAX COURT WASHINGTON, DC 20217 WILLIAM A. LLANOS, Petitioner(s), v. ) ) ) ) ) Docket No. 9890-18. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ORDER 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at San Francisco, California, containing her oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision shall be entered for respondent. Dated: Washington, D.C. October 15, 2019 (Signed) Kathleen Kerrigan Judge SERVED Oct 15 2019 3 1 2 Bench Opinion by Judge Kathleen Kerrigan September 11, 2019 3 William A. Llanos v. Commissioner 4 5 6 7 8 9 Docket No. 09890-18 THE COURT: The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal 10 Revenue Code and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. Unless otherwise indicated, all 12 section references are to the Internal Revenue Code in 13 effect for the tax year in issue, and all Rule references 14 are to the Tax Court Rules of Practice and Procedure. All 15 monetary amounts are rounded to the nearest dollar. 16 By notice of deficiency dated February 12, 2018, 17 respondent determined a deficiency of $42,418 for 2014 and 18 additions to tax pursuant to section 6651(a)(1) for 19 20 $5,106, section 6651(a)(2) for $3,631, and section 6654 for $368. Respondent has conceded the section 6654 21 addition to tax. 22 Trial in this case was conducted in San 23 Francisco, California, on September 9, 2019. Petitioner 24 represented himself. Respondent was represented by 25 Elizabeth F. Rodoni. After rulings on reserved objections, the parties' stipulation of facts and first supplemental stipulation of facts were admitted into evidence along with the attached exhibits. We find the 4 following facts: Findings Petitioner resided in California when he timely filed his petition. He was born in 1964. During 2014 Petitioner was an employee of Space Systems Loral, LLC. Petitioner received a Form W-2, Wage and Tax Statement, reporting wages of $117,935. During 2014, petitioner had an individual retirement account (IRA) with Morgan Stanley. For 2014, 1 2 3 4 5 6 7 8 9 10 11 12 13 Morgan Stanley reported on Form 1099-R, Distributions from 14 Pensions, Annuities, Retirement or Profit-Sharing Plans, 15 IRAs, Insurance Contracts, etc., of $43,289 from 16 Petitioner's IRA, and that the distributions were early 17 withdrawals and did not meet any exceptions provided in the Code. 18 19 On December 11, 2017, respondent sent petitioner 20 a letter indicating that respondent had prepared a 21 substitute for return for him pursuant to section 6020(b) 22 with respect to 2014. Respondent's letter included a Form 23 4549, Income Tax Examination Changes, a Form 886-A, 24 Explanation of Items, and a Form 13496, IRC Section 25 6020(b) Certification. The substitute for return included savings bond interest income, 5 taxable distributions from a retirement account, and wage income. This information was on the basis of third-party reporting. Respondent sent petitioner a notice of deficiency on February 12, 2018. The notice of deficiency stemmed from the substitute for return. Prior to the issuance of the notice of deficiency, on December 28, 2017, respondent received from petitioner a signed Form 1040NR, U.S. Nonresident Alien Income Tax Return. The 1 2 3 4 5 6 7 8 9 10 only income reported on the return was $3,000. Petitioner 11 12 13 14 claimed a personal exemption and reported no tax owed. On March 19, 2018, respondent sent petitioner a letter indicating that his response sent on December 28, 2017, had not been reviewed because of a large volume of 15 mail. On April 5, 2019, respondent sent petitioner a 16 letter indicating that no change was made to the notice of 17 deficiency based upon information petitioner sent 18 respondent. Respondent did not accept the Form 1040NR. 19 Petitioner filed a motion to dismiss for lack of 20 jurisdiction, and this Court has denied the motion. 21 22 OPINION Generally, the Commissioner's determinations in 23 a notice of deficiency are presumed correct, and the 24 taxpayer bears the burden of proving those determinations 25 erroneous. Rule 142(a)(1); welch v. Helvering, 290 U.S. 111, 115 (1933). 6 In unreported income cases such as this, the Commissioner must establish "some evidentiary foundation" connecting the taxpayer with the income- producing activity or demonstrating that the taxpayer actually received unreported income. See Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), rev'g 67 T.C. 672 (1977); see also Edwards v. Commissioner, 680 F.2d 1268, 1270-1271 (9th Cir. 1982) (holding that the Commissioner's assertion of deficiency is presumptively correct once some substantive evidence is introduced demonstrating that the taxpayer received unreported income). The requisite evidentiary foundation is minimal 1 2 3 4 5 6 7 8 9 10 11 12 13 and need not include direct evidence. See Banister v. 14 Commissioner, T.C. Memo. 2008-201, aff'd, 418 F. App'x 637 15 16 (9th Cir. 2011). If the Commissioner introduces some evidence 17 that the taxpayer received unreported income, the burden 18 shifts to the taxpayer, who must establish by a 19 Preponderance of the evidence that the deficiency was 20 arbitrary or erroneous. See Hardy v. Commissioner, 181 21 F.3d 1002, 1004 (9th Cir. 1999), aff'g T.C. Memo. 1997-97. 22 Respondent met the burden of production as to the 23 unreported income determined in the notice of deficiency. 24 Respondent produced a Form W-2 and a Form 1099-R. 25 Petitioner does not dispute receiving the $200 interest (973) 406-2 250 } operations@esalbers.net I www.escnbersa et from a savings bond. Petitioner has not shown that the burden of proof should shift to respondent as to any 7 relevant factual issue. Petitioner has the burden to show by a preponderance of evidence that the deficiency was arbitrary or erroneous. Gross income generally includes all income from whatever source derived, including wages, distributions from retirement plans, and interest. Sec. 61(a); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-430 1 2 3 4 5 6 7 8 9 10 (1955); Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th 11 Cir. 1988), aff'g T.C. Memo. 1987-225; sec. 1.61-2(a)(1), 12 13 14 Income Tax Regs. The United States Supreme Court has held consistently that Congress defined gross income to exert the "'the full measure of its taxing power.'" 15 Commissioner v. Glenshaw Glass Co., 348 U.S. at 429 16 17 (quoting Helvering v. Clifford, 309 U.S. 331, 334 (1940)). Petitioner did not make any valid arguments that 18 his wages or retirement distributions are excludable from 19 gross income because of any specific provision of law. 20 See Rodriguez v. Commissioner, T.C. Memo. 2009-92. 21 Petitioner did not dispute receiving the $200 of interest. 22 He disputes whether it should be taxable. He also 23 contends that the savings bond was his son's. Petitioner 24 provided no evidence that savings bond belonged to his 25 son. 8 We do not need to discuss petitioner's frivolous and groundless arguments. See Heisey v. Commissioner, T.C. Memo. 2002-41, slip op. at 4, aff'd, 59 F. App'x 233 (9th Cir. 2003). We shall not painstakingly address Petitioner's assertions "with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit." Crain v. Commissioner, 737 F.2d 1417 1418 (5th Cir. 1984). Section 72(t)(1) provides for a 10% additional 1 2 3 4 5 6 7 8 9 10 tax on early distributions from a qualified retirement 11 plan for the taxable year in which such amount is 12 13 14 15 received. Section 72(t)(2) provides a list of exceptions, and petitioner did not show that he met any of the exceptions. The Commissioner bears the burden of production 16 with respect to a taxpayer's liability for additions to 17 tax, requiring the Commissioner to come forward with 18 sufficient evidence indicating that the imposition of 19 additions to tax is appropriate. See sec. 7491(c); Higbee 20 v. Commissioner, 116 T.C. 438, 446 (2001). Once the 21 Commissioner satisfies the burden of production, the 22 taxpayer must come forward with persuasive evidence that 23 the Commissioner's determination of additions to tax is 24 25 incorrect or that the taxpayer has an affirmative defense such as reasonable cause. See Rule 142(a); Higbee v. 9 Commissioner, 116 T.C. at 446-447. Petitioner's frivolous arguments do not establish reasonable cause. See McGowan v. Commissioner, T.C. Memo. 2006-154, slip op. at 5. Section 6651(a)(1) authorizes the impositions of an addition to tax for failure to timely file a return. To determine whether a taxpayer has filed a valid return for purposes of section 6651(a)(1), the Court looks to the test in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986). The four-part test in Beard v. Commissioner, 82 T.C. at 777, requires that: (1) that the document contains sufficient data to calculate tax liability, (2) the document purports to be a return, (3) there is an honest and reasonable attempt to satisfy the requirements of the tax law, and (4) the taxpayer executes the return under penalties of perjury. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Petitioner's Form 1040NR was not a valid return because it 17 did not contain sufficient data to calculate his tax 18 liability. Furthermore, it was filed after April 15, 19 2015. Petitioner did not show reasonable cause and is 20 21 22 liable for the addition to tax pursuant to section 6651(a)(1). Section 6651(a)(2) imposes an addition to tax on 23 taxpayers for their failure to timely pay the amount of 24 tax shown on a return. This addition to tax applies only 25 when an amount of tax is shown on a return. Sec. 73)4002250 operationseescribersmet www.escribersaet 10 6651(a)(2),(g)(2). When a taxpayer has not filed a valid return, the section 6651(a)(2) addition to tax may not be imposed unless the Secretary has prepared a substitute return. See Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). Respondent has established that the Secretary prepared a substitute for return for 2014 that satisfies the requirements of section 6020(b) by providing Forms 4549, 886-A, and 13496 for 2014. See Cabirac v. Commissioner, 120 T.C. 163, 170- 172 (2003), aff'd without published opinion, 94 A.F.T.R. 2d (RIA) 2004-5490 (3d Cir. 2004). Respondent has shown that petitioner has failed to pay his Federal income tax 1 2 3 4 5 6 7 8 9 10 11 12 13 obligations for 2014. Petitioner has not shown reasonable cause and is liable for the addition to tax pursuant to section 6651(a)(2). A decision will be entered for respondent. This concludes the Court's oral Findings of Facts and Opinion in this case. (Whereupon, at 8:55 a.m., the above-entitled matter was concluded.) 14 15 16 17 18 19 20 21 22 23 24 25 cuners