TAX COURT OPINION

Case: Christina M. Dingess
Docket Number: 17989-15
Judge: Wherry
Opinion Type: bench
Filed: 11/14/2016
Pages: 19

SA Whøy UNITED STATES TAX COURT WASHINGTON, DC 20217 ) ) ) ) Docket No. 17989-15, 17999-15. CHRISTINA M. DINGESS, Petitioner, v. 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 herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Robert A. Wherry, Jr. at Columbus, Ohio, containing his oral findings of fact and opinion rendered on September 16, 2016. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Robert A. Wherry Judge Dated: Washington, D.C. November 14, 2016 SERVED N0y Capital Reporting Company 3 1 2 Bench Opinion by Judge Robert A. Wherry, Jr. September 16, 2016 3 Christina M. Dingess v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket Nos. 17989-15 and 17999-15 THE COURT: 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. These oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is rendered pursuant to Section 7459(b) and Rule 152. All citations to sections, unless otherwise noted are to the Internal Revenue Code of 1986 as amended to the year at issue. Citations to rules are to the Tax Court Rules of Practice and Procedure. Petitioner is represented by William F. Ballam. Evan K. Like represented respondent. Respondent determined that petitioner has income tax deficiencies in the amounts of $4,821 for 2013 and ,814 for 2014. Petitioner does not dispute the adjustments which resulted in the deficiencies. The issue for the Court to decide is whether petitioner is liable for the deficiencies arising from income tax returns that were electronically 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 filed by her paid tax return preparer. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts and related exhibits are incorporated by this reference. 6 Petitioner resided in Ohio when the petitions in this 7 8 9 10 11 12 13 14 15 case were filed. Petitioner befriended Clement McGee, now known as Cortez Santana, when she was approximately 11 years old. They attended school together and remained friends thereafter. The two were also involved in an on-again/off-again relationship from 2008 until 2015, and petitioner and Mr. Santana lived together during some of the time that they were romantically involved. Petitioner also provided 16 Mr. Santana with financial support, including during 17 18 19 the years at issue. Petitioner completed high school in 2007, and thereafter obtained a job as a crew member at a 20 McDonald's fast-food franchise. During 2010 21 22 23 24 25 petitioner was promoted to shift manager, and she continues to work as a shift manager today. In her duties as a shift manager, petitioner inter alia is responsible for overseeing the cash balances of the cash registers during her shift. She is also 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 personally responsible for recording the money taken from the cash registers and the transfer of the cash drawers from the cash register of each crew member to a safe at the end of her shifts. As a result of the income that petitioner earned through her employment, she incurred an obligation to file federal income tax returns. For the taxable years 2008 and 2009, her father filed 9 petitioner's tax returns he had prepared for her 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 electronically. Petitioner generally provided her father with the tax forms she received from her employer and he prepared the tax returns with Turbo Tax help. Petitioner did not review her returns before they were filed. For the taxable years 2008 and 2009 respectfully, petitioner claimed and received tax refunds of $443 and $139 respectively. Sometime in early 2011, Mr. Santana informed petitioner that his mother, Tamara McGee, was a tax return preparer. Mr. Santana suggested that petitioner allow Ms. McGee to prepare her return for the taxable year 2010 because M s. McGee could probably obtain a larger refund for petitioner than her father could. Although petitioner was romantically involved with Mr. Santana, she had not at that time and still has not met Ms. McGee. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 Petitioner knew nothing about Ms. McGee's 2 3 4 5 6 7 8 qualifications to prepare returns, but she agreed to let Ms. McGee prepare her return for 2010 and file it electronically on her behalf. After 2010 petitioner continued to have Ms. McGee prepare her tax returns, including those for the taxable years 2013 and 2014, which are the years at issue in this case. For each year, 9 petitioner's return was essentially prepared 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 according to the following procedures. For taxable years 2013 and 2014, petitioner gave Mr. Santana the Form W-2, Aage and gax tatement, that she received from her employer and a tax preparation fee of $150. Mr. Santana delivered the W-2 and the fee to Ms. McGee, who prepared and filed the tax return on petitioner's behalf. Petitioner clearly authorized Ms. McGee to file tax returns on her behalf, although Ms. McGee did not act in accordance with best practices for a paid tax return preparer. Petitioner did not execute a power of attorney for Ms. McGee and the returns filed for 2013 and 2014 did not identify Ms. McGee as the paid tax preparer. Ms. McGee appears to have included a personal identification number (PIN) for 25 petitioner's signatures, which appear in the record 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 as a series of asterisks. However, petitioner intended for Ms. McGee to prepare and file a return on her behalf, and she provided the information and fees necessary for Ms. McGee to do so. Petitioner did not file any other federal income tax return for taxable years 2013 and 2014. After Ms. McGee filed the returns, she prepared and signed a typewritten statement acknowledging that she had filed a tax return on petitioner's behalf. These statements stated that petitioner would be receiving a tax refund of somewhere between $1,300 and $1,600 for each of the taxable years 2013 and 2014 and authorized the refunds to be deposited into a bank account controlled by Ms. McGee. Ms. McGee gave the statements to Mr. Santana and he showed them to petitioner. Petitioner signed them, and Mr. Santana returned the statements to Ms. McGee. Petitioner did not keep a copy of the typewritten statements. Likewise, she also did not ask to see or otherwise receive a copy of her tax returns for 2013 or 2014. Contrary to what was represented to petitioner, Ms. McGee actually filed returns claiming refunds of $5,415 and $5,253 for 2013 and 2014 respectively. The inflated refunds were claimed 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 based on falsely asserted head of household filing status, a dependency deduction for a minor child with the initials C.L., as well as earned income tax, child tax, and additional child tax credits. For 2013 the IRS processed petitioners return and deposited the claimed refund of $5,415 into Ms. McGee's bank account. Ms. McGee gave several hundred dollars to Mr. Santana. Petitioner believed that her total refund was approximately $1,600, the amount shown on the statement. Because she was supporting Mr. Santana financially at the time, petitioner requested approximately $400 and let him keep the rest as a gift. Ms. McGee and 14 Mr. Santana appropriated the remainder of the refund 15 16 17 18 19 20 21 22 23 24 25 claimed on petitioner's return. Because she did not see a copy of her return or the bank deposit statement, however, petitioner was unaware of the size of the refund claimed on her behalf. After processing petitioner's return for 2014, the IRS froze a portion of the refund claimed. The IRS deposited only $1,317 of the $5,253 refund claimed into Ms. McGee's bank account. Petitioner did not receive any of this amount. Shortly thereafter the IRS sent petitioner a notice in which it asked for additional information concerning her 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2014 return. Petitioner gave that notice to 2 Mr. Santana and asked that he pass it along to 3 4 5 Ms. McGee. In response to the notice, Ms. McGee, through Mr. Santana requested $428 to resolve the issue as well as an additional fee of $125. 6 Petitioner paid Mr. Santana the requested amounts. 7 8 Shortly thereafter, the IRS sent petitioner a second notice concerning her 2014 return. 9 Petitioner called the IRS to inquire about the second 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 notice and learned about the false items that Ms. McGee claimed on her 2014 return. On April 13, 2015, respondent issued to petitioner a notice of deficiency with respect to the taxable year 2013, and on June 8, 2015, respondent issued petitioner a notice of deficiency for taxable year 2014. In each notice, respondent disallowed petitioner's claimed head of household filing status, dependency deduction for C.L., and earned income tax, child tax, and additional child tax credits that were claimed on petitioner's returns. Petitioner concedes that these adjustments are correct. Petitioner filed a separate petition with the Court in response to each of the notices for 2013 and 2014. On September 3, 2015, petitioner filed a 25 motion to consolidate, in which petitioner requested 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 that the separate cases be consolidated for purposes of trial, briefing, and opinion. The Court granted the motion on October 21, 2015. On or around July 13, 2015, petitioner submitted to the IRS a Form 14157 Complaint: Tax 6 Return Preparer, in which petitioner alleged that 7 8 9 10 11 Ms. McGee had stolen her tax refunds and claimed false items on the federal tax returns filed on her behalf for taxable years 2010 through 2014. On or around July 13, 2015, petitioner also submitted to the IRS a Form 14157-A, Tax Return Preparer Fraud or 12 Misconduct Affidavit. On Form 14157-A petitioner 13 14 15 16 17 18 19 20 21 22 23 alleged that for the taxable years 2010 through 2014 Ms. McGee altered her tax return without her knowledge or consent, received all or a portion of her refund without her knowledge or consent, and had her refund or a portion of her refund deposited into an account that was not hers. OPINION Generally, the Commissioner's determination of a taxpayer's tax liability is presumed correct, and the taxpayer bears the burden of proving the determination improper. Rule 142(a); Welch v. 24 Helvering, 290 U.S. 111, 115 (1993). However, 25 pursuant to Section 749(a)(1), A the burden of proof on 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 factual issues that affect the taxpayer's tax liability may be shifted to the Commissioner where the "taxpayer introduces credible evidence with respect to *** such issue." The burden will shift only if the taxpayer has, inter alia, complied with substantiation requirements pursuant to the Code and "maintained all records required under this title and has cooperated with reasonable requests by the Secretary for witnesses, information, documents, 10 meetings, and interviews." Sec. 7491(a)(2)(B). 11 12 13 14 15 16 17 18 19 Because we decide these cases on the preponderance of the evidence, we need not address who bears the burden of proof. Petitioner concedes that she is not entitled to head of household filing status, dependency deductions, and tax credits claimed on the returns filed by Ms. McGee. Petitioner argues, however, that she should not be held responsible for the unauthorized acts of her tax return preparer. 20 Petitioner first argues that the documents filed by 21 22 23 24 Ms. McGee do not constitute a binding tax return and that case law to the contrary is distinguishable. Further, petitioner argues that she is entitled to relief under provisions of the Internal Revenue 25 Manual. We have a great deal of sympathy for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 petitioner. She testified candidly before the Court and we recognize that she is a victim in these circumstances. Nevertheless, we must conclude that she is liable for the deficiencies resulting from the income tax returns prepared on her behalf. A taxpayer has a duty to file timely a complete and accurate income tax return and to pay the amount shown as due on the return. See generally Secs. 6001, 6011(a), 6012(a)(1), 6072(a), 6151(a). Section 6061 provides that "any return *** required to -be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the Secretary." To address issues associated with signatures for returns filed electronically, Congress enacted Section 6061(b)(1), which provides that th.e Secretary shall develop procedures for the acceptance of signatures in digital or other electronic form. 19 Until such procedures are in place, the Secretary may 20 waive the requirement of a signature or provide for 21 22 23 24 25 alternative methods of signing or subscribing a return. .Sec. 6061(b)(1)(A). A filed document must meet several requirements to qualify as a tax return. Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd 793 F.2d 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 139 (6th Cir. 1986). First, it must contain sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury. Id. Petitioner asserts that the returns filed by Ms. McGee fail the fourth requirement because petitioner did not execute the return. Rather, it appears that Ms. McGee inserted a PIN. The copy of the return provided by respondent shows only a series of asterisks and accordingly the record does not show the actual PIN originally entered. However, 15 petitioner's return was executed by her agent, and 16 17 18 19 20 21 22 she must abide by it. Alternatively, the doctrine of equitable estoppel prevents petitioner from disavowing the return filed on her behalf, at her direction, and with her consent. Section 1.6012-1(a)(5), Income Tax Regs., permits returns to be made by an agent in narrow circumstances with the permission of respondent. 23 Whenever a return is made by an agent, it must be 24 25 accompanied by a power of attorney authorizing the agent to act for his principal. Id. Although 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 taxpayers are required to request permission to have an agent execute and file a return, obviously respondent could waive that requirement. See Lombardo v. Commissioner, 99 T.C. 342, 356 (1992), 5 aff'd sub nom. Davies v. Commissioner, 68 F.3d 1129 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (9th Cir. 1995). Further, we have previously found that the strict requirements for the filing of a paper return by an agent do not apply with full force to electronically filed returns. Ballantyne v. Commissioner, T.C. Memo. 2010-125, 99 T.C.M. (CCH) 1523, 1525 (2010). It is a principle of agency law that an agent, acting within the scope of his actual authority, expressly or impliedly conferred, can bind his principal. Saunders v. Allstate Ins. Co. (1958) 168 Ohio St. 55, 58-5995 0.0. 2d 303, 305, 151 N.E.2d 1, 4. Accordingly, even where a taxpayer has not personally signed the return, we have held valid a return filed on their behalf where it is clear that the preparer had actual authority to electronically file a return for the taxpayer. Ballantyne v. Commissioner, 99 T.C.M. (CCH) at 1523. Petitioner provided Ms. McGee with Form W-2 information in order for her to file a return for petitioner. Further she paid Ms. McGee to prepare the return and signed a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 15 1 2 3 statement acknowledging that a return was filed on her behalf. Ms. McGee clearly had actual authority to file the return on petitioner's behalf. 4 Petitioner is thus bound by Ms. McGee's signature and 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 the filed returns are valid. Additionally, principals of estoppel bar petitioner from disclaiming the return filed by Ms. McGee as her own. Equitable estoppel applies in tax cases when the following correlative facts are present: The taxpayer, by his conduct, which includes language, acts, or silence knowingly makes a representation or conceals material facts t at he intends or expects will be acted upon will be acted upon by taxing officials in determining his tax, and the true or concealed material facts are unknown to the taxing officials or they lack equal means of knowledge with the taxpayer, and act on the taxpayer's representation or concealment and to retrace their steps on a different state of facts 20 would cause the loss of taxes to the fisc. Robinson 21 22 23 24 v. Commissioner, 100 F.2d 847, 849 (6th Cir. 1939). Petitioner knew that she had an obligation to file tax returns, although she was apparently unaware that she was required to sign them. 25 Petitioner intended that Ms. McGee would file the tax 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 16 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 returns at issue here on her behalf and she intended the IRS to treat them as her tax returns for the 2013 and 2014 year, respectively. Petitioner testified that she followed a similar procedure for the years her father prepared and filed electronically her Federal tax returns for her. Because Ms. McGee did not identify herself on the returns as their preparer, the IRS was not put on notice of her involvement. Consequently, the IRS reasonably relied on the PIN included on the return to conclude that it was petitioner's. Accordingly, petitioner may not now disavow the return because she disagrees with the contents improperly included by her agent without her explicit knowledge. See Lombardo v. Commissioner, 99 T.C. at 356. Consequently, petitioner is responsible for the deficiency caused by the falsified return prepared by her agent. In Ballantyne v. Commissioner, supra, we held that a taxpayer was liable for tax deficiencies arising from a false return filed by a paid preparer. 99 T.C.M. (CCH) at 1525. Like petitioner, the taxpayer in Ballantyne handed relevant documentation to the preparer, who unbeknownst to petitioner, filed an inflated refund claim and pocketed the money. Id. at 1524. Although 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 1 2 3 the taxpayer did not review or sign the returns, we held they were "not excused from liability for the deficiency in his tax arising" from the return they 4 explicitly authorized, the preparer to file. Id. at 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1525. While petitioner's selected return preparer betrayed her trust, the record leaves no doubt that petitioner specifically authorized Ms. McGee to file returns for taxable years 2013 and 2014 on her behalf. Petitioner inexplicably failed to require the preparer to provide her a copy of her tax return nor did she demand to inspect and review it for accuracy before it was filed. Accordingly, she is responsible for the deficiencies arising from those returns. While recognizing that their facts are very similar, petitioner seeks to distinguish Ballantyne on two grounds. Neither is convincing. First, petitioner argues that the taxpayer in Ballantyne was far more sophisticated in financial matters. However, petitioner's lack of tax sophistication does not provide grounds to relieve her of responsibility for her return. She clearly understood that she had an obligation to file a return and she appointed Ms. McGee to prepare it. While we take into account the financial sophistication of the taxpayer in 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 10 11 determining whether to impose an accuracy-related penalty under Section 6662(a), no penalty has been asserted in this case. Petitioner points to the tax preparation habits in Ballantyne as a second distinguishing factor. In that case, the taxpayer previously used a national commercial tax preparer for several years, and in each of those he reviewed and signed the return before it was filed. 99 T.C.M. at 1524. In the years at issue, however, the taxpayer changed his habits and allowed the preparer to file the return 12 without reviewing or signing it first. Id. In 13 14 15 16 17 18 19 20 21 contrast, petitioner has not signed or reviewed her tax return for any taxable year. While we agree that is true, we do not see any reason this fact should relieve her of her tax liability here. Finally, petitioner asks that the Court provide her with relief available under the Internal Revenue Manual (IRM). In 2015 the IRS proscribed procedures under which it would provide relief to taxpayers who were the victim of tax return preparer 22 misconduct or fraud. Internal Revenue Manual pt. 23 24 25 25.24.1.2(1)(Feb. 25, 2016). In relevant part, this IRM provision provides relief where a taxpayer has authorized a preparer to file a return, but the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 19 preparer has altered the return or included otherwise unauthorized information. Id. The IRM states that under certain conditions the IRS will administratively adjust the taxpayer's account to reflect a valid return and remove the portion of the refund attributable to preparer misconduct. Id. If the taxpayer has received a refund that is in excess of what is shown due as a result of their valid return, the taxpayer will be responsible for the excess. Id. Petitioner only received approximately $1,600 of her claimed refund for taxable year 2013, and none of the refund for 2014 as such petitioner argues that the deficiency should be limited to the $1,600 amount. However it is a well-settled principle that the Internal Revenue Manual does not have the force of law, not binding on the IRS, and confers no rights on taxpayers. McGaughy v. Commissioner, T.C. Memo. 2010-183; see United States v. Caceres, 440 U.S. 741 (1979); Fargo v. Commissioner, 447 F.3d 706, 713 (9th Cir. 2006), aff'g T.C. Memo. 2004-13. We acknowledge that petitioner was, assuming that we have received all relevant true facts, a victim in all of this, and we encourage her to pursue all possible administrative and civil remedies against the true villains here, Cortez 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Santana and Tamara McGee. However, the Internal Revenue Manual does not provide grounds for us to determine a tax deficiency less than the deficiency determined by respondent pursuant to applicable law as enacted by Congress. To reflect the foregoing, decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion. The Court also notes that the Court does not believe that the entry of the Court's decision in this case would prevent petitioner from still applying to the IRS through their administrative channels to see if they would grant her some relief pursuant to the Internal Revenue Manual provision, since I believe that provision contemplates that it may be applied after the taxpayer has already paid the tax and filed their return and the problem comes to light, as was the case here. So Ms. Dingess may 19 wish to follow up with the Service in that regard. 20 21 22 23 24 25 And that concludes this matter. (Whereupon, at 5:55 p.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com