TAX COURT OPINION

Case: Timothy S. Moriarty
Docket Number: 27331-12
Judge: Buch
Opinion Type: bench
Filed: 02/03/2014
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 TIMOTHY S. MORIARTY, Petitioner ) ) ) v. ) Docket No. 27331-12. 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 with this order to both petitioner and respondent a copy of the pages of the transcript of the trial in this case that contain the oral findings of fact and opinion that was rendered at the trial session at Boston, Massachusetts. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. February 3, 2014 SERVED FEB 0 5 2014 Capital Reporting Company 3 Bench Opinion by Judge Ronald L. Buch January 9, 2014 Timothy S. Moriarty v. Commissioner Docket No. 27331-12 THE COURT: The following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion may not be relied upon as precedent in any other case. This opinion is in conformity with Internal Revenue Code section 7459(b) and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Background This is not a proverbial case of "he said-she said." This is a literal case of the he said.-she said. We are confronted by directly conflicting testimony of the petitioner, Mr. Moriarty, and his former employer through Ms. Yamada. Mr. Moriarty responded to a 2008 Craigslist posting for a laborer position with Trinity Irrigation, Inc. Trinity Irrigation is owned by 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Mr. Ed Marchant and Ms. Kim Yamada (who are husband 25 and wife). Mr. Moriarty was hired, and as is often 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 the case, it appears that Mr. Moriarty became friends 2 with the owners of the company, occasionally playing 3 4 5 6 7 8 poker or attending sporting events with Mr. Marchant. In late 2009 or early 2010, Mr. Moriarty did some work around the house for Mr. Marchant and Ms. Yamada (the house also serves as the office for Trinity Irrigation). Mr. Moriarty was paid in cash. At some point in 2010, a dispute arose as to whether 9 Mr. Moriarty should have been an employee or an 10 independent contractor of Trinity Irrigation. That 11 matter was ultimately settled with a payment being 12 13 14 15 16 made to Mr. Moriarty and a separate payment being made to Mr. Moriarty's counsel in that matter. For this much of the story, there does not appear to be any dispute. Now for the he said-she said portion. 17 Mr. Moriarty and Ms. Yamada were the only witnesses, 18 19 and their stories directly conflict. Trinity Irrigation issued a Form 1099-MISC, 20 Miscellaneous Income, to Mr. Moriarty for payments 21 22 23 24 25 allegedly made to him in 2010. According to Ms. Yamada, Mr. Moriarty's work around the house was extensive. He remodeled a bathroom, painted walls, refinished floors, and refinished stairs. This work allegedly included moving walls, putting in a shower, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 and moving a toilet, along with corresponding drywall and tile work. Ms. Yamada alleges that she paid 3 Mr. Moriarty over $12,000 in cash that consisted of a 4 5 6 7 8 9 10 11 12 13 14 15 16 17 series of $800 installments. She provided a listing of the payments to the Court showing payments beginning in 2009 and continuing into 2010, but she alleges that the 2009 payments were in fact made in early 2010, after she returned from an overseas trip. She alleges that the payments were all made in cash that she obtained from a safe in her home. Mr. Moriarty disputes the Form 1099. He does not dispute doing work around Mr. Marchant and Ms. Yamada's house, but he alleges that the work was limited to refinishing a set of stairs and that he was paid $400 for that work in 2009. He recalls that he did the work in 2009, because he alleges that he sought and was given permission to work in 18 Mr. Marchant and Ms. Yamada's home while they were on 19 20 21 22 23 24 25 vacation in late 2009. He also recalls that he asked for payment in 2009 because he needed cash over the holidays. Both Ms. Yamada and Mr. Moriarty offer plausible explanations as to why the other is being untruthful. Ms. Yamada alleges that Mr. Moriarty is dishonest and wants to avoid taxes. She claims that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 when he first went to work for Trinity Irrigation, he asked to be treated as an independent contractor because he didn't want to pay child support, and he wanted to avoid the reporting of wage income. She further alleges that he was willing to work on her home at a lower rate because he was not a licensed contractor and because he wanted to be paid in cash to avoid reporting of the income. Mr. Moriarty alleges that Ms. Yamada and 10 Mr. Marchant want to get back at him for the dispute 11 12 13 14 15 16 17 18 19 about employment classification by 1ssulng an inflated Form 1099 to him. Because the principal dispute centers on cash payments, there is little documentary evidence to support either Mr. Moriarty's or respondent's position. Ms. Yamada alleged that the first cash payment was made when the alleged bathroom renovation started in early December. However, she later testified that none of the cash payments were made 20 until 2010 after she returned from vacation (and 21 22 23 24 25 then, the accumulated $2400 cash payment was drawn from her own personal savings that she removed from a safe in her house). When authenticating exhibit 8-R, Ms. Yamada made the same inconsistent statements: she claimed that she noted the payments as they were 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 made, but likewise stated that she was outside the 7 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 country when they were made, and then later testified that she made them when she returned. Moreover, although she testified that the notes of the payments were made on the back of her 2009 calendar, the document included as page 3 of exhibits 8-R is, fairly clearly, a 2010 calendar. In short, Ms. Yamada's testimony was inconsistent and at times implausible. There is also evidence that is simply lacking. It is difficult to prove that cash was not received, but there can be evidence that cash was, in fact, received or that the renovation work was in fact done. For example, there is no evidence of unexplained deposits into Mr. Moriarty's bank account; there are no receipts for the materials for the alleged extensive renovations that were completed. In short, the record is lacking. In any court proceeding where a taxpayer asserts a reasonable dispute with respect to income reported on a third-party information return and fully cooperates with the IRS, "the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return." Sec. 6201(d). Full 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 cooperation requires informing the IRS of the dispute 2 within a reasonable time. House Report 104-506, at 3 4 5 6 7 36 (1996), 1996-3 C.B. 49, 84. In addition, a taxpayer must provide timely "access to and inspection of all witnesses, information, and documents within the control of the taxpayer." Sec. 6201(d). It appears from the limited record that 8 Mr. Moriarty complied with the requirements of 9 section 6201(d), but moreover, the testimony 10 11 12 respondent elicited from Ms. Yamada demonstrated that the 2010 Form 1099-MISC was inaccurate, because it included amounts that she stated that she paid to 13 Mr. Moriarty in 2009. Although it would appear that 14 15 16 17 18 19 20 21 22 23 24 respondent has the burden of production to corroborate the information on the disputed Form 1099, in the end, this case does not turn on the burden; weighing the evidence as presented, the scales tip in favor of Mr. Moriarty, even if only slightly. There remain some loose ends. There were several payments by check that were at issue at one point. Mr. Moriarty conceded all of those except for two; respondent conceded the remaining two checks totaling $695.85. Mr. Moriarty also conceded that he 25 received a $984 payment for snow plow work. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 Mr. Moriarty's ready willingness to concede the 2 3 4 5 6 7 various amounts were paid to him helped further bolster his credibility. There was also a payment for $580.79, which .the evidence indicates is not taxable. Mr. Moriarty does not recall that payment, and Ms. Yamada identified it as a reimbursement for supplies purchased by Mr. Moriarty for Ms. Yamada and 8 Mr. Marchant. 9 10 11 12 13 14 15 16 There is also the issue of several "gifts" given to Mr. Moriarty by Mr. Marchant and Ms. Yamada. Those gifts include Christmas, birthday, and New Years gifts, along with the purchase of a pair of eyeglasses. To the extent there were Christmas and birthday gifts, Mr. Moriarty stated that the gifts were paid to him in 2009. Ms. Yamada stated that her husband told her that the gifts were paid to 17 Mr. Moriarty on December 24, 2009; yet as the 18 accountant for Trinity Irrigation, she included it in 19 Mr. Moriarty's 2010 Form 1099. The uncontroverted 20 21 22 23 24 25 evidence is that it was paid in 2009, and thus not taxable in 2010. And Ms. Yamada's inclusion of that amount on the 2010 Form 1099 further calls into question the accuracy of that form. Likewise, Ms. Yamada testified that Trinity Irrigation bought eyeglasses for Mr. Moriarty in 2010; however, the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 receipt for those glasses is dated December 29, 2009. Although the glasses would not be ready for pick up 3 until 2010, they were paid for in 2009 and the pick- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 up slip is in the name of Mr. Moriarty, thus the transfer was complete in 2009. Whether a gift or compensation, it was paid on Mr. Moriarty's behalf in 2009 and thus is not taxable in 2010. See Sproull v. Commissioner, 16 T.C. 244 (1951), aff'd, 194 F.2d 541 (6th Cir. 1952) (An economic or financial benefit conferred on an employee as compensation is taxable in the year conferred, even if the employee does not enjoy immediate possession, as long as no one else can exercise control over the property); see also Sec. 25.2511-(2) (b), Gift Tax Regs. (The gift is complete once "the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another".) Then there is a $200 "New Years" cash tip allegedly paid on January 9, 2010. Ms. Yamada testified that her husband told her that he had made that payment; she did not testify from personal knowledge that the payment was made. In 23 weighing Mr. Moriarty's direct denial of having 24 25 received the payment against Ms. Yamada's hearsay recounting of what her husband told her more than 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 three years ago, the weight of the evidence clearly falls in favor of Mr. Moriarty. (We note, as an aside, that a "gift" from an employer is often taxable. Section 102(a) allows taxpayers to exclude from gross income the value of property acquired by gift, bequest, device, or inheritance. The Supreme Court has defined a gift for statutory purposes as a transfer of property that proceeds from a "detached and disinterested generosity', 'out of affection, respect, admiration, charity or like impulses.'" Commissioner v. 12 Duberstein, 363 U.S. 278, 285, 80 S. Ct. 1190, 4 13 14 L.Ed.2d 1218 (1960) (citations omitted). In this case, had any gifts in fact occurred in 2010, they 15 would likely have been taxable to Mr. Moriarty. It 16 17 18 19 20 21 22 23 24 25 is fairly clear that, however good the employment relationship may at one time have been, the relationship between Mr. Moriarty and Mr. Marchant and Ms. Yamada was not one that is characterized by detached and disinterested generosity.) Lastly, there is the issue of the payments made in connection with the employment dispute. Until 2005, there had been differing treatment by the courts with respect to the attorney's fees portion of damage settlements or litigation. Some courts 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 treated the attorney's fees portion as the taxpayer's income, even though paid directly to the attorney. 3 Others treated the attorney's fees portion as not 4 5 6 7 8 9 includable in the taxpayer's income. In Commissioner v. Banks, 543 U.S. 426 (2005), the Supreme Court resolved those differences and held that the portion of the settlement paid to attorneys was income to the taxpayer under the anticipatory assignment of income doctrine established in Lucas v. Earl, 281 U.S. 111 10 (1930). Accordingly, the amount paid directly to 11 Mr. Moriarty's attorney is income to Mr. Moriarty. 12 Conclusion 13 14 15 16 17 18 19 20 21 22 23 24 25 Both Mr. Moriarty and respondent made various concessions at or before trial. The only remaining items in dispute are various cash payments allegedly made to Mr. Moriarty and the inclusion into income of attorney's fees paid on Mr. Moriarty's behalf. The Court finds that no cash payments were made in 2010 and thus no payments were required to be included into income. As for the attorney's fees paid on behalf of Mr. Moriarty, the law is clear that the payment is income to Mr. Moriarty even though paid directly to the attorney. The parties will need to complete computations and a decision will be entered under Rule 155. 866.488.DEPO www.Capita1ReportingCompany.com 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 Capital Reporting Company (Whereupon, at 3:26 p.m., the above- entitled matter was concluded.) 13 866.488.DEPO www.CapitalReportingCompany.com