TAX COURT OPINION

Case: Gary A. Woodward
Docket Number: 8632-10
Judge: Gustafson
Opinion Type: bench
Filed: 07/01/2011
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 GARY A. WOODWARD' KVC Petitioner, v. ) Docket No. 8632-10. COMMISSIONER OF INTERNAL REVENUE, Respondent O R D E R 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 transcript of Gustafson at Houston, Texas, on June 21, 2011, containing his oral the trial. in the above case before Judge David fact and opinion rendered at the pages of the the trial findings of the conclusion of In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. July 1, 2011 SERVED Jul 01 2011 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 David Gustafson June 21, 2011 Woodward v. Commissioner Docket Number 8632-10 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. The oral Findings of Fact and Opinion shall not be relied on as precedent in any other case. 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 Rules of Practice and Procedure. PROCEDURAL BACKGROUND By notice of deficiency dated January 20, 2010, respondent, the Internal Revenue Service (IRS), determined a deficiency in the Federal income tax of petitioner Gary A. Woodward in the amount of $2,455 for the year 2007, plus additions to tax under section 6651(a) (1) in the amount of $249.75, and under section 6651(a) (2) in the amount of $77.70. For the reasons explained hereafter, we will sustain the deficiency. This case was scheduled to be tried at the Court's session beginning June 20, 2011, in Houston, Texas. Mr. Woodward did not appear, but he had previously cooperated with the IRS in preparing a stipulation of facts, which the IRS proffered when the 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 case was called. That stipulation sets forth facts sufficient to enable the Court to decide the case. FINDINGS OF FACT Mr. Woodward resided in Texas when he filed the petition in this suit. In 2007 Mr. Woodward worked for four companies that paid him a total of $27,619 for his work. (Stip. 6-9.) On October 15, 2008, Mr. Woodward submitted to the IRS a Form 1040, "U.S. Individual Income Tax Return" (Ex. 1-J), on which he did not report that income. Rather, on the line for "Wages, salaries, tips, etc.", he inserted the number zero, as he did on almost all the other lines on the return. However, on line 64 ("Federal income tax withheld * * *") and lines 72, 73, and 74a, he reported income tax withheld from his wages for purposes of claiming a refund of those amounts. The IRS did not treat this zero return as a valid return. Instead, the IRS prepared a substitute for return (SFR) based on the information it had received from Mr. Woodward's payors, and it sent Mr. Woodward a letter dated June 3, 2009 (Ex. 2-J, attachment), stating that he still needed to file a return. The record does not show that he ever did file one. 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 On January 20, 2010, the IRS issued to Mr. Woodward a notice of deficiency (Ex. 2-J), determining a deficiency of tax resulting from his unreported compensation from the four companies that had paid him. On April 12, 2010, Mr. Woodward filed a timely petition with this Court, disputing the deficiency. In an attachment to his petition, Mr. Woodward made a variety of assertions as to why he supposedly does not owe income tax. On January 20, 2011, the Court issued notice to the parties that the case would be tried at the Houston calendar beginning June 20, 2011, and also served the Court's Standing Pretrial Order (SPTO). The IRS filed a pretrial memorandum, as required by the SPTO. Mr. Woodward did not. On June 9, 2011, in response to the assertions in the IRS's pretrial memorandum, the Court issued to Mr. Woodward an order explaining that compensation for services is income taxable under section 61, warning about the provision of section 6673(a) for imposition of a penalty for taking frivolous positions, and urging Mr. Woodward to come to trial ready to prove his entitlement to any deductions that he could substantiate. When the case was called on June 20, 2011, the IRS appeared by counsel, but Mr. Woodward did not 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 appear. Respondent's counsel proffered the parties' stipulation, in which Mr. Woodward admitted receiving the compensation for his work in 2007. OPINION The IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS determined and to prove his entitlement to any deductions he claims. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). I. Income Mr. Woodward admits his receipt of the compensation at issue. Section 61(a) defines gross income as meaning "all income from whatever source derived, including (but not limited to) (1) Compensation for services ...." Mr. Woodward's payments from the four companies clearly fall within this broad description. The arguments in Mr. Woodward's petition were frivolous. He has not made any filing or argument repeating those arguments, so we assume they are properly abandoned. For an explanation of why we would not in any event rebut all of those frivolous assertions in an opinion, see Wnuck v. Commissioner, 136 T.C. No. 24 (May 31, 2011). 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 7 II. Deductions The IRS's notice of deficiency allowed Mr. Woodward the standard deduction. Mr. Woodward did not appear at trial to argue for any deductions or credits. He is therefore entitled no deductions or credits not allowed in the notice of deficiency. III. Additions to tax A. Section 6651(a) (1) Section 6651(a) (1) authorizes the imposition of an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect. See United States v. Boyle, 469 U.S. 241, 245 (1985); Harris v. Commissioner, T.C. Memo. 1998-332. The only purported return that Mr. Woodward filed was frivolous -and did not constitute a return for purposes of section 6651(a) (1). See Oman v. Commissioner, T.C. Memo. 2010-276. The addition applies "unless it is shown that such failure is due to reasonable cause and not due to willful neglect". Mr. Woodward does not claim reasonable cause, and the record shows no basis for such a claim. Mr. Woodward failed to timely file a valid return for the 2007 tax year, and we hold that he is liable for the addition to tax under section 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 8 6651(a) (1) for that year. B. Section 6651(a) (2) Section 6651(a) (2) imposes an addition to tax for failure to pay the amount of tax shown on a return. The addition to tax under section 6651(a) (2) applies only when an amount of tax is shown on a return. Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). The Commissioner's burden of production with respect to the section 6651(a) (2) addition to tax requires him to introduce evidence that a return showing the taxpayer's tax liability was filed for the year in question. Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), affd. 521 F.3d 1289 (10th Cir. 2008). In a case such as this one where the taxpayer did not timely file a valid return for the tax year at issue, the Commissioner must introduce evidence that a valid substitute for return was made pursuant to section 6020(b). See sec. 6651(g) (2). To constitute a valid substitute for return under section 6020(b), "the return must be subscribed, it must contain sufficient information from which to compute the taxpayer's tax liability, and the return form and any attachments must purport to be a 'return'." Spurlock v. Commissioner, T.C. Memo. 2003-124. The substitute for return attached to the parties' 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 stipulation (Stip. 4; Ex. 3-J) satisfies section 6020(b), and the IRS has therefore satisfied its burden of production under section 7491(c) with respect to the section 6651(a) (2) addition to tax. ' As with the addition under section 6651(a) (1), the addition under section 6651(a) (2) applies "unless it is shown that such failure is due to reasonable cause and not due to willful neglect". Mr. Woodward has not claimed reasonable cause, and the record shows no basis for such a claim. Accordingly, we hold that Mr. Woodward is liable for the addition to tax under section 6651(a) (2) for the 2007 tax year. IV. Penalty under section 6673 Section 6673(a) (1) authorizes the Tax Court to impose a penalty not in excess of $25,000 whenever it appears that proceedings have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in such proceeding is frivolous or groundless. Mr. Woodward's petition did indeed state frivolous positions. However, it appears he abandoned them in response to the Court's order. Moreover, he did cooperate with the IRS in preparing a stipulation in which he admitted (as he should) his receipt of compensation. Because of this positive behavior, we will not impose a penalty. 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 2s 10 However, we warn Mr. Woodward that he is not entitled to file a frivolous suit and then evade penalty by going limp 14 months later at the time of trial. Rather, section 6673(a) also penalizes maintaining proceedings "for delay". It is an abuse of the system for a taxpayer to stall assessment of tax by filing a frivolous Tax Court suit that he will eventually concede. If Mr. Woodward should repeat this behavior in the future, then he would be at risk for the imposition of a penalty of up to $25,000. If he becomes a repeat offender, he should not expect a repeat of the leniency we show here. Decision will be entered in favor of respondent. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:18 a.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // Heritage Reporting Corporation (202) 628-4888