TAX COURT OPINION

Case: Wayne M. & Latonya H. Robinson
Docket Number: 16997-11
Judge: Holmes
Opinion Type: bench
Filed: 08/07/2012
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 WAYNE M. & LATONYA H . ROBINSON, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) O R D E R Docket No. 16997-11. 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 Petitioners and to respondent a copy of transcript of Holmes at San Francisco, California, on June 26, 2012, containing his oral of the trial in the above case before Judge Mark V. the pages of the findings of fact and opinion rendered at the conclusion the trial. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. August 7, 2012 SERVED AUG 1 5 2012 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 3 Bench Opinion by Judge Mark V. Holmes June 26, 2012 Wayne M. & LaTonya H. Robinson v. Commissioner Docket No. 16997-11 THE COURT: In the case of Robinson v. Commissioner, Docket No. 16997-11, 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. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court's Rules of Practice and Procedure. This case involves the 2008 taxes for the Robinsons, and the dispute is largely a factual one regarding unreported wages or independent contractor income of $40,370 that a company named C-Prime allegedly paid to Mr. Robinson in calendar year 2008. The government has also asserted a penalty under 6662(a). I will take these issues in order. As to the first issue, did Mr. Robinson receive the income, Petitioners did file a timely 2008 Form 1040 and each reported very substantial income, both Mr. and Mrs. Robinson, but neither reported taxable wages in the amount of $40,370 from C-Prime, Inc. on their Form 1040 for year 2008. The rules are 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 4 simple in this area. Gross income is defined by the Code as "all income from whatever source derived", including any income from business. That's 26 U.S.C. § 61(a). The key fact here is that Mr. Robinson had an S corporation in 2008 named P-Solutions and in his petition argued that slightly greater than $40,000, in other words, this $40,370, from C-Prime was actually paid to that company. And Mr. Robinson did report income from P-Solutions. In fact, he reported a large amount of income from P-Solutions on his 2008 tax return. So this is really a question of fact: Whom did C-Prime pay? Here, the Commissioner requested and received copies of canceled checks and monthly statements from C-Prime, Inc. These checks were issued to Mr. Robinson in his own name, not to P- Solutions. And indeed, the Commissioner's counsel was informed by Mr. Robinson that he did not contest receiving the taxable wages from C-Prime but, as I said, in his petition did contest whether they were received by him or by his S corporation. At least two of the checks from C-Prime show Mr. Robinson's signature as an individual, not as an agent for his corporation on the back where he 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 5 endorsed them. The Commissioner also introduced a copy of a W-2 that was issued to Mr. Robinson in his own name showing the $40,370 in wages or other compensation was paid to him in his own name as an individual and not to his corporation. We therefore conclude that it's certainly much more likely than not that Mr. Robinson received the $40,370 that he did not report on his 2008 tax return and therefore find in the Commissioner's favor on the first issue. The second issue is whether this failure to report triggers a penalty under 26 U.S.C. § 6662(a). The Code provides for an addition to tax equal to 20 percent of the underpayment to be imposed when any portion of the underpayment is due to, one, negligence or disregard of rules and regulations, or, two, any substantial understatement of income tax. See 26 U.S.C. § 6662(a), 6662 (b) (1), and (b) (2). A substantial understatement of income tax occurs when the amount of the understatement for a particular tax year exceeds the greater of 10 percent of the tax required to be shown on the return for that tax year or $5,000. 26 U.S.C. § 6662(d) (1). Petitioners have understated more than 10 percent of the tax required to be shown on their 2008 return and 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 6 more than $5,000. There is therefore a substantial understatement of income tax with respect to the Robinsons' 2008 return. The second trigger for this penalty is negligence, and negligence includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue laws. 26 C.F.R. § 1.6662-3 (b). And indeed, 26 C.F.R. § 1.6662- 3 (b) (1) (i) states, "Negligence is strongly indicated where a taxpayer fails to include on an income tax return an amount of income shown on an information return as defined in § 6724 (d) (1)." The W-2 that the Court has concluded more likely than not Mr. Robinson received is precisely such an information return. But even if Mr. Robinson did not receive that W-2, as he testified he did not, he did sign the backs of these checks and received statements from C- Prime. The government, in other words, has proven a prima facie case that the penalty applies to the Robinsons in this case. However, of course, a penalty under 26 U.S.C. § 6662(a) may not be imposed with respect to any portion of an underpayment if there was reasonable cause a taxpayer acted in good faith with respect to the underpayments. See 26 U.S.C. § 6664 (c) (1). In 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 deciding whether a taxpayer had reasonable cause and acted in good faith, I have to look at such factors as his knowledge and experience, his reliance, if any, on the advice of well-informed and competent professionals and his efforts to assess his proper tax liability. . Here Mr. Robinson did use a preparer to do his and his wife's 2008 return, but I find that he did not give to that preparer all the W-2s. In fact, I conclude it more likely than not that he did want this extra $40,370 to be paid to his S corporation but didn't arrange that until 2009 and perhaps for future years as well, but certainly not in 2008. But he didn't do that in 2008. The income belonged to him as an individual. And therefore I find that he did not demonstrate that he had reasonable cause and good faith in omitting that money from his and his wife's joint return for 2008. Therefore, decision will be entered·for the Commissioner, and the Court will enter a decision finding a deficiency for the Robinsons for tax year 2008 in income tax of $14,129 and an addition-to-tax under § 6662(a) of $2,325. This concludes the Court's oral findings of fact and opinion in this case. 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 (Whereupon, at 10:14 a.m., the bench opinion in the above-entitled matter was concluded.) 8 // // // // // // // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888