TAX COURT OPINION

Case: Sammie L. Allen
Docket Number: 5986-08
Judge: Colvin
Opinion Type: bench
Filed: 04/09/2010
Pages: 16

13 o J c~ UNITED STATES TAX COURT WASHINGTON, DC 2021 7 SAMMIE L . ALLEN, Petitione r V . Docket No . 5986-08 . .COMMISSIONER OF INTERNAL REVENUE „ Respondent O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 Joseph Robert Goeke at Louisville, Kentucky, on March 19, 2010, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, a decison will be entered under Rule 155, Tax Court Rules of Practice and Procedure . (Signed ) Joseph Robert Goeke Judge Dated : Washington, D .C . April 9, 2010 SERVED APR 1 4 2010 3 1 BENCH OPINION BY JUDGE JOSEPH ROBERT GOEKE 2 MARCH 19, 201 0 3 SAMMIE L . ALLEN V . COMMISSIONER 4 DOCKET NO . : 5986-0 8 5 The Court has decided to render ora l 6 findings of fact and opinion in this case, and th e 7 following represents the Court's oral findings of fact 8 and opinion . The oral findings of fact and opinio n 9 shall not be relied upon as precedent in any other 10 case . 11 This opinion is in conformity with IR C 12 Section 7459(b) and Rule 152(a) of the Tax Court Rules 13 of Practice and Procedure . All section reference s 14 that follow are in reference to the Internal Revenue 15 Code in effect during the years at issue, and Rul e 16 references are to the Tax Court Rules of Practice and 17 Procedure . 18 This is a federal income tax deficienc y 19 case . At the outset, we will address Petitioner, Mr . 20 Allen's position, that this Court lacks jurisdiction 21 to find a deficiency because the United State s 22 District Court for the Eastern District of Kentucky 23 entered a judgment in 2004 in the criminal cas e 24 against Mr . Allen for the same taxable years that are 25 involved in this deficiency case . Heritage Reporting Corporation (202) 628-4888 4 1 The District Court judgment pursuant to Mr . 2 Allen's plea of guilty found him guilty of one count 3 for willfully failing to file a federal income tax 4 return under Section 7203 for the year 2000 an d 5 dismissed the remaining five counts of failure to file 6 pursuant to a plea bargain . 7 Mr . Allen was ordered to be in prison for a 8 term of five months and was ordered to pay restitution 9 to the Internal Revenue Service as a monetary penalty . 10 Mr . Allen was also ordered to pay $25 per month after 11 his incarceration as a means of paying down the total 12 restitution award of $19 , 603 .60 . 13 The restitution penalty was not a ta x 14 assessment . No tax assessment of the deficiencie s 15 determined by the Respondent inlhis case has yet been 16 made against Mr . Allen . This is because Mr . Allen 17 filed a timely petition in this Court and assessment 18 of the taxes related to the notices of deficiency, 19 which Mr . Allen petitioned is not permitted unde r 20 Sections 6213 ( a) and 6215(4) . 21 The criminal judgment of the District Court 22 did not relieve Respondent of the requirements o f 23 Section 6212 and does not usurp this Court' s 24 jurisdiction to determine whether deficiencies i n 25 income tax and additions to tax are appropriate unde r Heritage Reporting Corporation (202) 628-4888 1 Sections i ' and 7 22 (egg) (2 ) Anfb 5 + 2 The United States District Court did no t 3 have jurisdiction to determine an income ta x 4 deficiency in the criminal case and did not do so . 5 Sections 6211 through 6215 and Kazinski v . 6 commissioner) 541 F .3/d 671 (6th Circuit 2008) . 7 Accordingly , Mr . Allen's jurisdictional and res 8 judicata arguments are without merit, and this Cour t 9 has jurisdiction under Section 621.(a) to review the 3 10 notices of deficiency issued by Respondent relative 11 the years at issue in this case, 1993 through 2001 . 12 The facts of this deficiency case ar e 13 straightforward and are based on the evidence in the 14 record of trial, which was admitted pursuant to this 15 Court's pretrial order and rulings at the trial held 16 on March 18, 2010, in Louisville, Kentucky . 17 On December 10, 2007, Respondent% sent three 18 notices of deficiency to Mr . Allen for the years 1993 19 through 2001 . Mr . Allen timely filed a petition in 20 this Court on March 10, 2008 and requested place of 21 trial in Louisville, Kentucky . Mr . Allen was a 22 resident of the commonwealth of Kentucky when he filed 23 his petition in this case . 24 By way of background, Mr . Allen is a 25 mechanic by trade and has operated as a subcontracto r Heritage Reporting Corporation (202) 628-4888 6 1 providing-mechanical services . Prior to 1993, he had 2 filed federal income tax returns for at least som e 3 years, including the year 1992 . Mr . Allen did no t 4 file federal income tax returns for any of the years 5 1993 through 2001 and Respondent prepared substitut e 6 returns pursuant to sections 6020(b) for all the years 7 at issue . 8 The three Notices of Deficiency issued by 9 Respondent, which form the basis for the dispute in 10 this case, contain determinations of deficiencies in 11 income tax and additions to tax under Section 6651(f ) 12 for fraudulent failure to file income tax returns, 13 Section 6651(a)(2) for failure to pay the amount o f 14 tax shown on the returns prepared by the Respondent as 15 substitutes, and Section 6654 for failure to mak e 16 estimated tax payments . 17 For 1993, the Notice of Deficienc y 18 determined a deficiency in income tax of $10,204, an 19 addition to tax under Section 6j51 (f) of $7,397 .90, an 4Ka 20 addition to tax under Section 6651(a)(2) in the amount 21 of $2,551, and an estimated tax penalty of $93 .58 . 22 For 1994, the Notice of Deficienc y 23 determined a deficiency in income tax of $11,183, the 24 addition to tax for failure to file in the amount of 25 $8,107 .68, the addition to tax for failure to pay tax Heritage Reporting Corporation (202) 628-4888 7 1 in the amount of $2,795 .75, and the estimate tax 2 penalty of $580 .31 . 3 For 1995 , the Notice of Deficiency 4 determined a deficiency in federal income tax o f 5 $13,700, an addition to tax under Section 6651(f) of 6 $9,932 .50, an addition to tax under Section 6651(a)(2) 7 in the amount of $3,425, and the estimated tax penalty 8 in the amount of $742 .89 . 9 For 1996 , the deficiency determined by 10 Respondent is $15,110 . The addition to tax under 11 Section 6651 ( f) is $10,954 . 75 . The addition to tax 12 under section 6651 ( a)(2) is $3,777 .50, and th e 13 estimated tax penalty is $804 .22 . 14 For 1997 , the deficiency amount shown in the 15 Notice of Deficiency is $14,244 . The addition to tax 16 under Section 6651 ( f) is $10,326 .90 . The addition to 17 tax un d er S ec ti on 6651 ( a) (2 is $ 3 , 561 , and th e 18 estimated tax penalty unde x6654 is $762 .50 . 19 For 1998 , the deficiency determined i s 20 $15,786. The addition to tax under Section 6651(f) is 21 $11,444 .85 . The addition to tax under Sectio n 22 6651 ( a)(2) is $3,946 . 50, and the estimated tax penalty 23 is $722 .37 . 24 For 1999 , the third Notice of Deficiency 25 determined a deficiency in federal income tax in th e Heritage Reporting Corporation (202) 628-4888 8 1 amount of $ 19,961 . An addition to tax under Section 2 6651 ( f) in the amount of $14,471 .73 . An addition to 3 tax under Section 6651 ( a)(2) in the amount o f 4 $4,990 .25, and an estimated tax ~ r x in the 5 amount of $ 966 .03 . 6 For 2000 , the deficiency in income tax 7 determined is $20,780 . The addition to tax unde r 8 Section 6651 ( f) is .$15,065 . 50 . The addition to tax 9 under Section 6651 ( a)(2) is $5,195 , and the estimate d 10 tax LJ + .is $1,109 .95 . 11 Finally for 2001, the Notice of Deficiency 12 determined a deficiency in federal income tax in the 13 amount of $20,523, an addition to tax under Section 14 6651(f) in the amount of $14,879 .18 , an addition to 15 tax under Section 6651 ( a)(2) in the amount o f 16 $5,130 .75 , and the estimated tax penalty under Section 17 6654 in the amount of $820 .18 . 18 The facts in the record establish that the 19 Petitioner received income in the years at issue as 20 determined in the Notices of Deficiency . There were 21 three sources of this income . Two were as an 22 independent contractor from Frederick Steel Company 23 and AB Steel Mill, Inc . This income from these two 24 sources was received in each of the years 1993 through 25 2001 . In addition , Social Security benefits wer e Heritage Reporting Corporation (202) 628-4888 9 1 determined to be taxable in the Notice of Deficiency 2 issued for 1999 through 2001 . 3 For all the years at issue Responden t 4 determined that the Petitioner, Mr . Allen, was liable 5 for the self-employment tax, and the deficienc y 6 amounts include self-employment tax . 7 The amount of non-employee compensation , 8 which Mr . Allen received from Frederick Steel for 199 3 through 2001 was respectively $19,257 .25, $23,875 .25 , 10 $25,398 .25, $30,259 .43, $34,030 .15, $35,930 .92 , 11 $35,563 .76, $41,197 .55, and $38,467 .80 . For all those 12 years, Frederick Steel issued to Mr . Allen t'orms 1099 13 reflecting the amounts listed above . 14 As stated previously, Mr . Allen also 15 received subcontractor income from AB Steel for the 16 years 1993 through 2001 . The amount of that income 17 respectively are $22,521 .23, $21,156 .25, $26,347 .26 , 18 $25,470 .47, $20,049 .68, $23,248 .76, $25,578 .70 , 6 19 $23,911 .42, and $27,894 .32 . 20 The record at trial established that Mr . 21 Allen submitted invoices and time cards to AB Steel 22 and Frederick Steel for work performed reflecting the 23 number of hours he worked and the type of work h e 24 completed . He was paid by check for those services . 25 Regarding actions that took place after Mr . Heritage Reporting Corporation (202) 628-4888 10 1 Allen was first contacted by Internal Revenue Servic e 2 agents concerning his failure to file federal income 3 tax returns, he sent two letters to the Interna l 4 Revenue Service in July 1995 in which he claimed that 5 he was not a taxpayer and that he was a nonresiden t 6 'alien . 7 Also after a meeting on November 51998 wit h 8 an Internal Revenue Service agent concerning Mr . 9 Allen's failure to file federal income tax returns for 10 the years at issue, Mr . Allen took steps to preven t 11 the Internal Revenue Service from collecting taxe s 12 from him . The specific steps he took were to have his 13 home and his automobile titled in a name other than 14 his own name . He did this despite the fact that he 15 continued to pay for and acquire insurance on those 16 assets . 17 Throughout the years at issue, in contacts 18 with the Internal Revenue Service, Mr . Allen failed to 19 provide documentation of his self-employment income 20 and expenses . This was despite the fact that he was 21 repeatedly asked by Internal Revenue Service agents 22 for this information . 23 The issues before the Court in this case 24 include the factual question whether Mr . Allen 25 received the non-employee compensation from AB Stee l Heritage Reporting Corporation (202) 628-4888 1 1 1 and Frederick Steel determined in the Notices o f 2 Deficiency for the years 1993 through 2001 . As we've 3 stated previously, we've made a factual determination 4 that indeed Mr . Allen did receive this income and that 5 he was required to file federal income tax returns for 6 the years at issue . 7 Another issue before the Court is whether Mr . Allen's failure to file federal income tax return s 9 for the years 1993 through 2001 was fraudulent, which 10 would make him liable for the addition to tax under 11 Section 6651(f) . 12 Yet again another issue before the Court is 13 whether Mr . Allen had reasonable cause for his failure 14 to file income tax returns from 1993 through 2001 such 15 that he should be relieved from the addition to tax 16 for failure to pay tax shown on a return under Section 17 6651(a)(2) . And related to that is the questio n 18 whether Mr . Allen is liable for the addition to ta x 19 under Section 6654 for the years 1993 through 2001 for 20 his failure to make estimated tax payments . 21 A previous issue framed in the Notices of 22 Deficiency and the pleadings in the case is whether 23 Mr . Allen is entitled to the standard deduction for 24 head of household filing status for the years a t 25 issue . In Respondent's trial memorandum, Responden t Heritage Reporting Corporation (202) 628-4888 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 1 2 concedes that Mr . Allen is entitled to the standar d deduction for head of household filing status for the years at issue . Another issue that Respondent has concede d in Respondent's . trial memorandum is whether Mr . Alle n is entitled to a personal exemption and a dependenc y exemption for the tax years 1993 through 2001 . We begin our discussion of the lega l analysis of the case with an analysis of the burden o f proof . In certain circumstances, taxpayers who introduce credible evidence on factual issues ca n maintain that the burden of proof should be place d upon Respondent pursuant-to Section 7491(a)(1) . In the present case, Mr . Allen has not provided an y credible evidence, and, indeed, Mr . Allen made a determination not to attend and participate in th e trial of the case after his motion for partial, summar y judgment was denied by the Court . Therefore, Sectio n 7491(a) does not apply to the present case, and wit h respect to Respondent's determinations of deficiencie s in income tax, Mr . Allen bears the burden of proof . Respondent acknowledges that Respondent bears the burden of proof with respect to proving tha t Mr . Allen's failure to file federal income tax retur n was due to fraud, and that Respondent bears the burde n Heritage Reporting Corporation (202) 628-4888 1 3 1 of production with respect to the other additions to 2 tax before the Court pursuant to Sections 7454 and 3 74 9 4 Finally, Mr . Allen's failure to produce any 5 credible evidence in support of his position makes the 6 requirements of Section 6201(d) non-applicable to the 7 present case, and, therefore, Respondent does not have 8 the burden of producing reasonable and probativ e 9 information in addition to the information used to 10 establish Respondent's position in the Notices of 11 Deficiency relative to the deficiencies in federal 12 income tax . 13 Nevertheless, the burden of proof relative 14 to the deficiencies in federal income tax is not the 15 basis on which we make the determinations in this case 16 because the record of trial establishes that Mr . Allen 17 did, in fact, receive self-employment income for all '18 the years in question as determined in the Notice S o f 19 Deficiency ; and Mr . Allen has failed to produce any 20 evidence that would refute Respondent's determinations 21 that he received Social Security income in the years 22 1999, 2000, and 2001 . 23 Despite his specious arguments that he is 24 not a taxpayer, Mr . Allen clearly did receive taxable 25 income and was subject to federal income tax for th e Heritage Reporting Corporation (202) 628-4888 1 4 1 years in question , Section 61 ( a)(1) and Section 1401 . 2 Having determined that Mr . Allen received 3 the income in question and is subject to the income 4 tax deficiencies as determined in the Notices o f 5 Deficiency , we turn to the question of whether th e 6 addition to tax under Section 6651 ( f) is applicable to 7 Mr . Allen . Section 6651 ( a) imposes additions to tax 8 upon taxpayers who fail to file federal income ta x 9 returns without reasonable cause according to the net 10 amount of tax due . Section 6651(f) provides for an .11 increased addition to tax when the failure to file is 12 fraudulent . The amount of the addition to tax 13 Respondent seeks pursuant to Section 6651 ( f) cannot 14 exceed 75 percent . In the Notices of Deficiency in 15 the present case, Respondent ' s calculations assert an 16 addition to tax under Section 6651(f) of 72 .5 percent . 17 Respondent has the burden of proving by 18 clear and convincing evidence that there is an 19 underpayment of tax and that the Petitioner intended 20 to evade taxes known or believed to be owing b y 21 failing to file federal income tax returns . Corecky 22 v . Commissioner 781 F .2,d 1566 (11th Circuit 1986), 23 affirming TC Memo 1985 - 63 ; Stoltzfus v . Geftwniseiene r 24 25 V . United States 398 F . 2 /r1d 1002 (3d . Circuit 1968) ; Webb v . Commissioner 394 F .21d 366 (5th Circuit 1968) , Heritage Reporting Corporation (202) 628-4888 1 affirming TC Memo 1966 - 85 ; v . Commissions 1 5 80 TC ; 2 111{ ( 1983) . A- 3 Fraud is not to be imputed or presumed but 4 rather must be established by some independen t 5 evidence of fraudulent intent, Beaver v . Commissioner 6 55 TC-85, 92 (1970) . Fraud may be established b y 7 surveying the entire course of conduct of the taxpayer 8 and drawing reasonable inferences therefrom . 9-Deis v . e- 9 United States 317 U .S . 492, 499 ( 1943) . J 10 Courts have relied on a number of badges o f 11 fraud in deciding whether to sustain th e 12 Commissioner's determinations with respect t o 13 fraudulent additions to tax . Although no single 14 factor may necessarily be sufficient to establish 15 fraud, the existence of several badges may be 16 persuasive circumstantial evidences Solomon v . 17 18 Commissioner 732 F .2Id 1459, 1461 ( 6th Circuit 1984) Circumstantial evidence that has been relied 19 upon i-e evidence of fraud includes understatement o f AS 20 income, inadequate records, pattern of failure to file 21 tax returns, awareness of the obligation to fil e 22 returns and pay'taxes, concealment of assets, and 23, failure to cooperate with tax authorities . I n 24 addition, the conviction for willful failure to file 25 income tax returns while not being conclusive evidenc e Heritage Reporting Corporation (202) 628-4888 1 6 1 of fraud is an indicator of fraudulent intent, 2 Wilkinson v . Commissioner TC Memo 1994-410 . J 3 In the present case, we find that Mr . 4 Allen's attempts to conceal assets from the Internal 5 Revenue Service, lack of cooperation, pattern o f 6 failure to file after having a history o f 7 understanding and appreciating his obligation to file 8 returns all establish sufficient evidence o f 9 fraudulent intent for the imposition of the penalty 10 for fraudulent failure to file federal income tax 11 returns . 12 We next turn to the addition to tax fo r 13 failure to pay under Section 6651(a)(2) which has been 14 imposed for all the years in question . The recor d 15 establishes that Respondent filed substitute for 16 returns under Section 6021(b) for each of the years 17 that Mr . Allen failed to file federal income tax 18 returns . 19 Under Section 6651(g), returns filed b y 20 Respondent pursuant to Section 6020(b) are sufficient 21 for use in applying the failure to pay amounts of tax 22 shown on the returns . Therefore, Mr . Allen, havin g 23 failed to produce any reasonable basis for his failure 24 to pay, we find that Respondent has born the burden of 25 going forward with evidence to establish th e Heritage Reporting Corporation (202) 628-4888 17 1 application of Section 6651(a)(2) . Likewise, we fin d 2 that Respondent has demonstrated that Mr . Allen has 3 failed to pay estimated taxes for all the years i n 4 question and that Respondent has established there was 5 no exception to this obligation in 1993 because Mr . 6 Allen did file a federal income tax return for 199 2 7 that did not contain sufficient overpayments to offset 8 any liability for 1993 . 9 Therefore, Mr . Allen having once agai n 10 failed to establish any reasonable basis as to why the 11 estimated tax penalties should not apply, we find that 12 the addition to tax under Section 6654 is als o 13 applicable to Mr . Allen for all the years at issue . 14 Because of Respondent's concession relative to Mr . 15 Allen's filing status, a Rule 155 computation will be 16 necessary, but in all other respects we uphol d 17 Respondent's determinations in the Notices of 18 Deficiency . 19 This concludes the Court's oral findings of 20 fact and opinion in this case . 21 (Whereupon, at 10 :49 a .m ., the bench opinion 22 in the above-entitled matter was concluded . ) 23 24 25 Heritage Reporting Corporation (202) 628-4888