TAX COURT OPINION

Case: Alvin Sheldon Kanofsky
Docket Number: 18163-15
Judge: Thornton
Opinion Type: bench
Filed: 11/17/2016
Pages: 16

22 UNITED STATES TAX COU T WASHINGTON, DC 20217 ALVIN SHELDON KANOFSKY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket Nos. 18162-15, 18163-15, ) ) 18182-15. ) ) 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 cases before Judge Michael B. Thornton at Winston-Salem, North Carolina, containing his 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, appropriate decisions will be entered. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. November 17, 2016 SERVED NOV 1 7 2016 Capital Reporting Company 3 1 Bench Opinion by Judge Michael B. Thornton 2 October 24, 2016 3 Alvin Sheldon Kanofsky v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 18162-15, 18163-15, 18182-15 The Court has decided to render oral findings of fact and opinion in these cases, and the following represents the Court's oral findings of fact and opinion. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent. This bench opinion is made pursuant to the authority granted in section 7459(b) and Rule 152. All statutory references are to the Internal Revenue Code in effect for the taxable years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. These cases were tried on October 24, 2016, in Winston-Salem, North Carolina. Alvin S. Kanofsky appeared pro se. Olivia Rembach appeared on behalf of respondent. When petitioner filed his petitions he resided in Pennsylvania. On April 17, 2015, respondent mailed to petitioner notices of deficiency for 2008, 2009, and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 2010, in which he determined deficiencies of $40,407, $24,310, and $22,017 for 2008, 2009, and 2010, respectively; additions to tax under section 6651(a)(1) of $6,763, $1,802, and $1,208 for 2008, 2009, and 2010, respectively; additions to tax under section 6651(a)(2) of $7,514, $2,002, and $1,208 for 2008, 2009, and 2010, respectively; and additions to tax under section 6654(a) of $929 and $148 for 2008 and 2009, respectively. Petitioner timely filed petitions contesting respondent's determinations. Each of the petitions was accompanied by a Request For Place Of Trial indicating three different trial locations: Winston-Salem, North Carolina; Cleveland, 14 Ohio; and Richmond, Virginia. Respondent filed 15 motions to change place of trial in the cases 16 docketed for trial in Cleveland, Ohio, and Richmond, 17 Virginia, which motions were granted. Respondent 18 19 20 21 22 23 then filed a motion to consolidate these cases for trial briefing and opinion, which motion was also granted. The issues for decision are whether petitioner is liable for the income tax deficiencies as determined by respondent for 2008, 2009, and 2010; 24 whether petitioner is liable for the additions to tax 25 under sections 6651(a)(1) and (2) for 2008, 2009, and 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 2010 and under section 6654 for 2008 and 2009; and 2 whether petitioner should be required to pay the 3 United States penalties pursuant to section 4 5 6 7 8 9 10 11 6673(a)(1). FINDINGS OF FACTS Some of the facts have been deemed stipulated and are so found. The stipulation of facts and accompanying exhibits are incorporated by this reference. During the 2008, 2009, and 2010 taxable years, petitioner was employed by Lehigh University. 12 Petitioner received wage income of $78,679, $82,655, 13 14 15 16 and $79,904 for 2008, 2009, and 2010, respectively, and Lehigh University issued Forms W-2, Wage and Tax Statement, to petitioner reflecting these compensation amounts. Petitioner also received 17 Social Security payments, distributions from a 18 19 retirement account maintained by the Teachers Insurance and Annuity Association (TIAA), 20 miscellaneous dividend distributions, and interest 21 22 23 24 25 income. All of the foregoing income items were reflected on information returns issued to petitioner and filed with the Internal Revenue Service (IRS). Although petitioner was obligated to file a Federal income tax return for each year, petitioner 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 did not file 2008, 2009, or 2010 Federal income tax returns, nor did he make any payments toward his Federal income tax liabilities for those years. Respondent prepared substitutes for returns (SFR) for 2008, 2009, and 2010, and issued to petitioner the notices of deficiency that are at issue in these cases. Petitioner timely petitioned this Court for redetermination of the income tax deficiencies and additions to tax. OPINION Respondent's determinations in a notice of deficiency are generally presumed correct, and petitioner bears the burden of proving them erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 matter of legislative grace, and the taxpayer bears 17 18 19 20 21 22 23 24 25 the burden of proving that he is entitled to any claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Petitioner does not contend that section 6201(a) or 7491(a) shifts the burden of production or proof to respondent, and the record does not establish that the requirements of section 7491 (a) are met. In sum petitioner bears the burden of proof. Section 61 provides that gross income 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 includes all income from whatever source derived, unless the taxpayer can establish that the specific item of income is nontaxable. Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-430 (1955). By virtue of the Court's Order dated October 7, 2016, petitioner is deemed to have stipulated to receipt of the various items of unreported income as determined in the notices of deficiency. In any event, 9 petitioner has not meaningfully disputed receiving 10 11 12 13 14 15 16 these various items of income. Petitioner appears to dispute the taxability of distributions from TIAA, suggesting that he received them on behalf of his deceased brother. However, petitioner was a beneficiary of his deceased brother's accounts and received the distributions in his capacity as a named beneficiary. 17 Petitioner has presented no credible evidence to 18 19 20 21 22 23 24 25 establish that the distributions were not taxable income to him. Accordingly, we sustain respondent's determination that the distributions were taxable. The Court notes that this same issue for 2006 and 2007 was litigated at Alvin Sheldon Kanofsky, Docket Number 3774-11, in which a decision was entered for respondent on this issue; that decision was affirmed by the United States Court of Appeals for the Third 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Circuit on June 24, 2013. 2 3 4 5 6 7 8 9 10 11 12 13 14 Section 162(a) permits a taxpayer to deduct the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. The taxpayer must maintain adequate records to substantiate the amounts of his income and entitlements to any deductions or credits claimed. Sec. 6001. Petitioner contends that he is entitled to various deductions for the years in issue. Petitioner testified generally that during 2008, 2009, and 2010 he was engaged in consulting and possibly other business activities, but his testimony was so vague and imprecise that we were unable to ascertain the nature, scope, and purpose of the 15 activities or to identify any expenses that he paid 16 17 18 19 20 21 22 23 24 25 in connection with the activities that could have been deductible. He testified that certain income from such activities was included in his summer wages from Lehigh University, and he sought to claim, as unreimbursed employee expenses, certain alleged costs associated with repair, upkeep, property taxes, and legal claims relating to one or more buildings during the years at issue. Apart from being inadequately substantiated, and apart from questions as to whether 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 certain of these claimed expenses represent capital expenditures rather than currently deductible items, such claims for itemized expenses lack legal basis. Under section 63(e)(2), a taxpayer must file a return in order to elect to itemize deductions. Having failed to file a return, petitioner is not entitled to claim itemized deductions as he seeks to do. Likewise, petitioner's general testimony unsupported by adequate documentation of expenses paid or incurred or even a filed tax return summarizing his position with respect to his alleged business activity and expenses is insufficient to satisfy petitioner's burden of proof to show that he is entitled to business deductions. Petitioner also failed to establish by credible evidence that respondent's use of the 17 married filing separate status in calculating his 18 19 20 21 22 23 24 income tax deficiencies for 2008, 2009, and 2010 was incorrect. Consequently, we sustain respondent's calculations of petitioner's income tax liability using the filing status of married filing separately and the allowance of one personal exemption. See sec. 151(b); sec. 1.6013-1(a)(1), Income Tax Regs. Respondent has the burden of production 25 with respect to additions to tax. Sec. 7491(c). To 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 meet this burden, respondent must produce evidence 2 3 4 5 6 7 8 9 10 11 12 showing that the additions to tax are appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once respondent satisfies this burden, petitioner has the burden of proof with respect to exculpatory factors such as reasonable cause. See id. at 447; Ruggeri v. Commissioner, T.C. Memo. 2008-300, slip op. at 5. Section 6651(a)(1) provides for an addition to tax when a taxpayer fails to file a timely return, unless the taxpayer establishes that the failure was due to a reasonable cause and not willful neglect. 13 Petitioner filed no Federal income tax returns for 14 the years at issue. His gross income exceeded the 15 maximum amount to be exempt from filing for each 16 17 18 19 20 21 22 23 24 25 year. See secs. 6012, 6072. Respondent has met his burden of production under section 7491(c). Section 6651(a)(2) provides for an addition to tax for failure to timely pay the amount of tax shown on a return, unless the taxpayer establishes that the failure was due to reasonable cause and not willful neglect. This addition to tax applies only when an amount of tax is shown on a return. See Cabirac v. Commissioner, 120 T.C. 163, 170 (2003), aff'd without published opinion, 94 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 A.F.T.R.2d (RIA) 2004-5490 (3d Cir. 2004); Burr v. Commissioner, T.C. Memo. 2002-69, aff'd, 56 F. App'x 150 (4th Cir. 2003). Petitioner failed to file a return, and, as evidenced by Form 13496, IRC Section 6020(b) Certification, respondent made an SFR pursuant to section 6020(b) that qualifies as a return for purposes of section 6651(a)(2). See sec. 6651(g)(2); Wheeler v. Commissioner, 127 T.C. 200, 208-209 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008); Grandy v. Commissioner, T.C. Memo. 2012-196, slip op. at 13. Respondent has met his burden of production. Because petitioner has failed to show reasonable cause for failing to pay timely the tax due as shown on the SFR, we hold that petitioner is liable for the section 6651(a)(2) addition to tax. Section 6654 provides for an addition to tax when a taxpayer fails to pay a required installment of estimated income tax. Each required installment 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 percent of the tax shown on the return for the taxable year (or, if the taxpayer filed no return, 90 percent of the tax for that year), or (2) 100 percent of the tax shown on the return, if any, for the 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 preceding taxable year. Sec. 6654(d)(1) (B). The record establishes that petitioner has a Federal income tax liability for each year at issue, made no estimated income tax payments for 2008, and filed no Federal income tax returns for 2007-2010. Respondent has satisfied his burden of production for the section 6654 additions to tax with respect to each year at issue. In his petition petitioner did not assign error to respondent's determinations of the additions to tax. Accordingly, we deem that petitioner has conceded any issue with respect to the additions to tax. See Rule 34(b) (4). In any case, the additions to tax under section 6651(a)(1) and (2) are appropriate because petitioner acknowledges that he failed to file his 2008, 2009, and 2010 Federal income tax returns, and he did not pay his Federal income tax liabilities. In addition, petitioner has not argued or put forth any evidence that the failure to file and failure to pay was due to reasonable cause and not due to willful neglect. Because petitioner failed to pay any Federal income tax for 2008, 2009, and 2010, we sustain respondent's determination of the section 6654(a) additions to tax. 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 13 1 At the conclusion of trial, respondent 2 moved for the imposition of the penalty under section 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 6673(a)(1) in each of these three consolidated cases. Section 6673(a)(1) authorizes this Court to require a taxpayer to pay to the United States a penalty not in excess of $25,000 whenever it appears that: (1) the taxpayer has instituted or maintained proceedings primarily for delay; (2) the taxpayer's position is frivolous or groundless; or (3) the taxpayer unreasonably failed to pursue administrative remedies. The purpose of section 6673 is to compel taxpayers to conform their conduct to settled tax principles and to deter the waste of judicial resources. See Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir. 1986); Salzer v. Commissioner, T.C. Memo. 2014-188, at *11. Petitioner is no stranger to this Court. He has been warned in prior proceedings that his conduct would subject him to penalty if he continued to repeat the same or similar arguments as utilized in his prior cases before this Court and the Court of Appeals for the Third Circuit. During the trial of the 2006 and 2007 tax liabilities this Court 24 explicitly warned petitioner that his assertion of 25 frivolous positions risked the imposition of a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 significant penalty. Kanofsky v. Commissioner, Docket Number 3774-11. The Court of Appeals for the Third Circuit has also previously warned petitioner that his "arguments * * * [are] not relevant * * * and do not advance his cause." Kanofsky v. Commissioner, 424 F. App'x 189, 191-192 (3d Cir. 2011) (per curium), aff'g T.C. Memo. 2010-46. In Kanofsky v. Commissioner, T.C. Memo. 2014-153, aff'd, 618 F. App'x 48 (3d Cir. 2015), 10 which involved respondent's efforts to collect 11 12 13 14 15 petitioner's assessed tax liabilities for 1996-2000, we reviewed his extensive record of litigation in this Court and concluded: Petitioner has abused the judicial process and delayed collection of his unpaid tax liabilities. 16 Petitioner is a well-educated individual who admits 17 18 19 20 that he understood cautions and warnings given by this Court, yet he continues to reiterate the same irrelevant and groundless arguments. He has wasted the time and resources of both respondent and this 21 Court. 22 23 24 25 Id. at *19-*20. We concluded that a penalty under section 6673(a) (1) was amply justified and required petitioner to pay a penalty of $10,000. Id. at *20. We "warn[ed] petitioner again that we 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 will consider imposing additional penalties if he 15 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 returns and continues to raise irrelevant, frivolous, and groundless arguments or institutes or maintains further proceedings in this Court to delay the payment of Federal income tax lawfully assessed against him." Id. Despite the foregoing imposition of the penalty and warning on July 31, 2014, petitioner nevertheless repeated the same series of groundless and irrelevant arguments in his response to a motion for summary judgment filed on September 3, 2014, in Docket Number 21821-13L. In that case the Court upheld the determination to proceed with a levy to collect the unpaid tax for 2006 and 2007 that was the subject of the case at Docket Number 3774-11. Kanofsky v. Commissioner, T.C. Memo. 2015-34. The Court concluded that petitioner's arguments were frivolous and that he instituted the case for the sole purpose of delaying the collection of his Federal tax liabilities and imposed a penalty under section 6673(a) of $20,000. Id. at *9-*10. In Kanofsky v. Commissioner, T.C. Memo. 2015-70, the Court upheld a notice of federal tax lien for the unpaid Federal income tax for 2006 and 2007 that was the subject of the case at Docket 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Number 3774-11, and imposed a penalty under section 6673(a) of $20,000. Each of these cases have either been affirmed on appeal to the Court of Appeals for the Third Circuit or in the cases of Kanofsky v. Commissioner, T.C. Memo. 2015-34, and Kanofsky v. Commissioner, T.C. Memo. 2015-70, were dismissed and venue not transferred to the Third Circuit because the cases lacked merit when petitioner improperly filed with the Courts of Appeal for the Second and Fourth Circuits. Despite numerous warnings and the imposition of the penalty under section 6673(a) on three prior occasions, petitioner continues to assert groundless arguments, appears to be maintaining the proceedings primarily for delay, and has failed to pursue administrative remedies available to him. 18 Petitioner's arguments in these cases continue to be 19 20 21 22 23 24 25 irrelevant to the tax liability at issue. In the three cases docketed before us, petitioner filed Requests For Place Of Trial requesting three distinct locations for trial in an attempt to game the Court's processes for imagined tactical advantage. One objective of these tactics, we believe, was to further delay or protract the proceedings. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 Petitioner has failed to avail himself of the 2 3 4 5 administrative remedies available to him by not filing returns and not providing information to support any claim he may have for business expenses. As a result of petitioner's failure to heed prior 6 warnings and persistence at maintaining these 7 8 9 10 11 12 proceedings we will impose a penalty under section 6673(a) of $8,000 in each of these three consolidated cases. We have considered the remaining arguments made by the parties, and to the extent not discussed above, we conclude those arguments are irrelevant, 13 moot, or without merit. To reflect the foregoing, appropriate decisions will be entered. This concludes the Court's oral findings of fact and opinion in these cases. (Whereupon, at 4:25 p.m., the above- entitled matter was concluded.) 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com