TAX COURT OPINION

Case: Christopher G. Improta
Docket Number: 27650-07
Judge: Colvin
Opinion Type: bench
Filed: 01/09/2009
Pages: 9

UNITED STATES TAX COURT Washington, D . C. 2021 7 CHRISTOPHER G . IMPROTA, Petitione r v . ) Docket No . 27650-07 SERVICE COMMISSIONER OF INTERNAL REVENUE , Respondent . 0 R D E R FILE S 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 of the above case before Judge Thomas B . Wells at Tampa, Florida, on November 19, 2008, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findi gs of fact and opinion, decision will be entered for respondent . (Signed) Thomas B . Wells Judg e Dated : Washington, D . C . January 9, 2009 SERVED JAN 13 2009 3 1 Bench -Opie" by Judge Thomas B . Well s Op ;nion 2 Christopher G . Improta v . Commissione r 3 November 19, 2008 Docket No . : 27650-0 7 4 The oral findings of 'fact and opinion shal l 5 not be relied upon as precedent in any other case . This is the case of Christopher G . Improta, Petitione r 7 vs . Commission of Internal Revenue, Respondent . 8 Docket Number 27650-07 . 9 This bench opinion is made pursuant to the 10 authority granted by Section 7459(d) and Rule 152 . 11 Unless otherwise noted all Section references are to 12 the Tax Court Rules of Practice and Procedure an d 13 references to the Internal Revenue Code, references to 14 Section are to the Internal Revenue Code . And al l 15 references to Rule are to the Tax Court Rules of 16 Practice and Procedure . 17 Respondent determined a deficiency i n 18 Petitioner's Federal Income Tac for taxable year 2005 19 in the amount of $51,781 .00, and additions to tax i n 20 the amounts of $11,650 .73, $4,142 .48, and $2,077 .01, 21 under Section 6651(a)(1), 6651j(a)(2) and 665 4 22 respectively . The addition to'tax under Sectio n 23 6651(a)(2) continues to accrue from the date of the 24 return at a rate of five percent per month no t 25 exceeding 25 percent . Heritage Reporting Corporation (202) 628-4888 4 1 The issue to be decided in this case i s 2 whether Petitioner has shown that the determination s 3 in the Notice of Deficiency are incorrect . None of 4 the facts have been stipulated .' At the time the 5 petition in the instant case was filed the Petitioner 6 resided in Fort Myers, Florida .,, The Petitioner faile d 7 to file any Federal Income Tax 'returns since 1999 . 8 The Petitioner has been working as a self-employed 9 health insurance agent since 2001 . The Petitione r 10 signed a contact with UGA, Association Field Services, 11 a division of the MEGA Life and Health Insuranc e 12 Company ("UGA"), and also singed a contract with 13 Performance Driven Awards, Inc . ("PDA") to provide 14 services as an independent contractor . PDA is a 15 sister corporation to the MEGA Life and Healt h 16 Insurance Company . Both of th se contracts were 17 renewed for the 2005 taxable year . 18 The MEGA Life and Health Insurance Company 19 keep track of one account for Petitioner for amount s 20 earned from both UGA and PDA . Upon receipt of a n 21 application for insurance Petitioner would receive an 22 advance of a portion of the commissions that wer e 23 expected to become earned by Petitioner . The money 24 advanced on each application is treated as a loan and 25 as such was not treated as income to Petitioner until Heritage Reporting Corporatio n (202) 628-4888 5 1 the commission actually was earned by virtue of a 2 policyholder paying a premium .'' The Petitioner' s 3 account was adjusted on a monthly basis offsetting the 4 monthly earned commissions against the advances h e 5 received and any debit balancel, . Additionally, if at 6 the end of the month the Petitioner had a credi t 7 balance he would receive a payment for that balance . 8 The Petitioner received a Form 1099 for both UGA and 9 PDA for the 2005 taxable year . Additionally, th e 10 Petitioner received a Form 109 9 from Alan Shimamoto, 11 S-h-i-m-a-m-o-t-o, and a Form 1099-DIV from Mellon 12 Investor Services for the 2005'' taxable year . 13 At trial Petitioner's only argument was that 14 there is no "valid taxing statute" . Petitioner failed 15 to provide any information on any of his income o r 16 expenses . As a general rule determinations made b y 17 the Commissioner in the Notice :~of Deficiency ar e 18 presumed to be correct and theltaxpayer bears th e 19 burden of proving otherwise . See Rule 142(a) ; Welch 20 v . Helvering , 290 U .S . 111, 115 (1933) . Moreover, it 21 is well-settled that "an income tax deduction is a 22 matter of legislative grace and that the burden i s 23 clearly showing the right to the claim deduction is on 24 the taxpayer" . Indopco, Inc . . Commissioner , 50 3 i 25 U .S . 79, 84 (1992) . Heritage Reporting Corporation (202) 628-4888 6 1 For the burden of proof to shift to th e 2 Commissioner the taxpayer must have complied with the 3 requirements of substantiationlrequired by th e 4 Internal Revenue Code, must have maintained al l 5 records required by the Internal Revenue Code and mus t 6 cooperate with reasonable requests by the Commissioner 7 for witness's information ; documents, meetings an d 8 interviews . See Section 7491( .)(2) ; Higbee v . 9 Commissioner 116 T .C . 438, 441 (2201) . 10 The Petitioner failed to satisfy the 11 requirements of Section 7491 . He has no t 12 substantiated any claim deductions or expenses . He 13 did not maintain records required by the applicable 14 Internal Revenue Code Sections and he has failed t o 15 cooperate with reasonable requests for information . 16 Accordingly the burden of proof remains with the 17 Petitioner . 18 Section 61 provides that "gross income means 19 all income from whatever source derived" . Gros s 20 income includes compensation for services including 21 commissions on insurance premiums . Cox v . 22 Commissioner , T .C . Memo 1996-241 ; Income Tax Regs 23 Section 1 .61-2(a)(1) . 24 The issue of whether advances made upon 25 future commission income paid to insurance agents Heritage Reporting Corporatio n (202) 628-4888 7 1 constitute income "depends on whether, at the time of 2 the making of the payment, the {agent} had unfettered 3 use of the funds and whether there was a bona fid e 4 obligation on the part of the agent to mak e 5 repayment" . Dennis v . Commiss I oner , T .C . Memo 1997- 6 275 . 7 In the situation where the advances ar e 8 really loans, when earned commissions are credited to 9 a taxpayer's account and the obligation to repay a 10 loan is reduced by the amount of the commissions 11 earned the reduction on the obligation does constitute 12 receipt of taxable commission income to the agent . 13 Cox, Supra . 14 In the instant case the contract and th e 15 records of the MEGA Life Insurance Company established 16 that the advances received by ',Petitioner were loans, 17 thus the amount of earned commissions offset against 18 Petitioner's debit balance and advances during 200 5 19 are taxable commission income to him along with the 20 additional payments he received as compensation for 21 his services during that year . 22 Under Section 162(a) a taxpayer is permitted 23 to deduct from gross income all "ordinary an d 24 necessary" business expenses paid or incurred during 25 the taxable year in carrying on a trade or business . Heritage Reporting Corporatio n (202) 628-4888 8 1 However, Sections 274(d) disallows any deduction under 2 Section 162(a) for any travel expense, including meal s 3 while away from home, unless the taxpaye r 4 substantiates the expense by adequate records or b y 5 sufficient evidence corroborating the amount, time and 6 place and business purpose of such expense . 7 Additionally, Section 262(a) prohibits any deduction 8 for personal living or family expenses . The taxpaye r 9 must furthermore keep records and made them available 10 to the Internal Revenue Service for inspection under 11 Section 6001 . The Petitioner has failed to show that 12 he paid or incurred any expenses in carrying on a 13 trade or business during the 2005 taxable year . 14 Section 6651(a)(1) provides that if a person 15 is required to file a return and fails to timely file 16 a return and that such failure', is not due t o 17 reasonable cause, then an addition to tax equal t o 18 five percent of the amount of tax required to be show n 19 on the return shall be assessed for the first month 20 during which the return is latje with an additional 21 five percent added for each month thereafter not 22 exceeding 25 percent in the aggregate . 23 Section 6651(a)(2) provides for an addition 24 to tax for failure to pay taxes shown on a return on 25 or before the payment due dater . In the instance case , Heritage Reporting Corporation (202) 628-4888 9 1 since Petitioner has not filed an income tax return 2 for the 2005 taxable year Respondent prepared a 3 substitute return for Petitioner under Sectio n 4 6020(B) . The Petitioner had no taxes withheld and 5 made no payments for the 2005 taxable year . 6 Accordingly the additions to tax under Section s 7 6651(a)(1) and (a) (2) apply . The penalty for failure 8 to pay estimated taxes applieslto an individual whose 9 tax liability for the year after credit for withhel d 10 taxes is more than $1,000 unless that individual paid 11 through withholding and estimated tax payments a t 12 least 90 percent of the tax shown on the return or 100 13 percent of the tax shown on the prior year's return , 14 or is paying installments on a current basis under an 15 annualized income installment method . Section 6654 . 16 The Petitioner has a liability due for his 200 5 17 taxable year greater than $1,0 1,00 and he does no t 18 qualify for any of the exceptions . Accordingly, th e 19 penalty under Section 6654(a) applies . 20 We hold that Respondent has satisfied hi s 21 burden of production under Section 7491(c) . In sum, 22 we sustain the determinations in Respondent's Notice 23 of Deficiency in the instant case in full to reflect 24 the foregoing . The decision will be entered fo r 25 Respondent . Heritage Reporting',, Corporation (202) 628-4888 10 1 This represents the Court's oral findings o f 2 fact and opinion in this case . This concludes this 3 case . Thank you . 4 (Whereupon, at 1 :30 p .m ., the bench opinion 5 in the above-entitled matter was concluded . ) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888