TAX COURT OPINION

Case: Edoin Ochoa
Docket Number: 17754-11
Judge: Vasquez
Opinion Type: bench
Filed: 06/26/2012
Pages: 6

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 EDOIN OCHOA, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 17754-11. ) ) ) ) ) ) ) ORD 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 the pages of the transcript of the trial in the above case before Judge Juan F. Vasquez at Omaha, Nebraska, on May 17, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Juan F. Vasquez Judge Dated. Washington, D.C. June 26, 2012 SERVED Jun 27 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 Juan F. Vasquez May 17, 2012 Edoin Ochoa v. Commissioner Docket No.: 17754-11 THE COURT: The Court has decided to render oral findings of fact and opinion in this case. The following represents the Court's oral findings of fact and opinion. This opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. Section references are to the Internal Revenue Code in effect for the taxable years in issue. Rule references are to the Tax Court Rules of Practice and Procedure. The trial was held in Omaha, Nebraska on May 15, 2012. Petitioner Edoin Ochoa appeared pro se. Dennis R. Onnen represented Respondent. Respondent determined deficiencies of $37,626 and $98,673 and accuracy-related penalties under section 6662(a) of $7,525.20 and $19,734.60 with respect to Petitioner's 2008 and 2009 Federal income tax respectively. After concessions the sole issue for decision is whether Petitioner is entitled to disallowed Schedule C Contract Labor expenses of $107,831 and $28 96 r 2008 .and 2009 respectively and whether Petitioner is liable for the accuracy-related penalty under section 6662(a) for 2008 and 2009. Some of the facts have been stipulated and are so 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 found. The stipulation of facts and exhibits received into evidence are incorporated herein by this reference. At the time the petition in this case was filed, Petitioner resided in Omaha, Nebraska. In general, Respondent's determinations in the notice of deficiency are entitled to a presumption of correctness and Petitioner bears the burden of rebutting that presumption by a preponderance of the evidence. Welch v. Commissioner, 290 U.S. 111 (1933); Rule 142(a). Petitioner has neither claimed the benefits nor met the requirements of section 7491(a) and, therefore, the burden of proof remains on the Petitioner. At the trial, Petitioner appeared pro se. Petitioner appeared with two Spanish speaking translators, Ms. Esther Perez and Mr. Jose Martinez. Petitioner does not speak English. He has an eighth grade education that he received in Mexico. After various manual labor jobs from 1993 to 2001, Petitioner went into the drywall contracting business in 2002. In 2008 and 2009 Petitioner filed a Schedule C as a drywall contractor. Petitioner reported gross receipts of $126,474 and $318,570 on his Schedules C for 2008 and 2009 respectively. Respondent does not question the gross receipts Petitioner reported on his Schedule C. In the notice of deficiency, Respondent disallowed 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 all of the contract labor expenses that Petitioner claimed on his 2008 and 2009 returns for lack of substantiation. Petitioner credibly testified how 80 percent of his drywall jobs come from two or three general contractors and that he subcontracts those jobs with contract laborers. Petitioner does not do any of the drywall work, although he does know how to drywall. He keeps himself in business by getting drywall contracting jobs. He testified that for a typical drywall job for a 3,000 square foot new house he pays a two-man crew $1,200 and the general contractor pays him $1,400. Petitioner's testimony made it clear that his business is very contract labor intensive. For instance, on his typical job where he is paid $1,400 to drywall a house and he pays $1,200 in contract labor, his contract labor to gross receipts ratio is 85.7 percent. His total contract labor to gross receipts ratios in 2008 and 2009 were 85.3 gr- percent ($107, 831 ÷ $126, 474) and 89 . 5 percent ($2 , ÷ $318,570) respectively. For 2008 and 2009, Petitioner credibly testified that he had each individual with whom he subcontracted fill out a Form W-9, Request for Taxpayer Identification Number and Certification. The contract laborers filled out the Forms W-9 in their own handwriting and provided 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 their social security numbers. In both 2008 and 2009, Petitioner issued Form 1099-MISC, Miscellaneous Income forms, to each contract laborer, using the social security number the contract laborer had provided on their Form W-9. Petitioner filed these Forms 1099-MISC with Respondent. Respondent's own records reflect receipt of five of the six Forms 1099-MISC Petitioner issued in 2008 and receipt of 21 of the 24 Forms 1099- MISC Petitioner issued in 2009. Petitioner credibly testified that he paid the amounts listed on each Form 1099-MISC issued to each contract laborer. Each year Petitioner kept track of which jobs each contract laborer worked in a spiral . notebook. Petitioner used this spiral notebook to determine the amount paid to each contract laborer. Petitioner also verified the amounts shown on each Form 1099-MISC with the contract laborer to make sure they were in agreement on what the contract laborer was paid. Petitioner timely filed his 2008 and 2009 Federal tax returns. Petitioner credibly testified as to the nature and amounts of his contract labor expenses. We accept Petitioner's credible testimony and his Forms 1099-MISC as substantiation of his contract labor expenses for 2008 and 2009. Accordingly, we do not sustain Respondent's 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 determination disallowing Petitioner's contract labor expenses. As to the accuracy-related penalty, Petitioner bears the burden of proof. Rule 142(a). Under section 7491(c), Respondent must produce evidence that it is appropriate to impose a penalty. However, Petitioner bears the burden of proof. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). The record shows that Respondent has met his burden of production under section 7491(c) as to the issues conceded by Petitioner. Petitioner failed to offer any evidence on this issue. Although we do not sustain Respondent's imposition of the accuracy-related penalty on the contract labor issue on which Petitioner has prevailed, we do sustain the accuracy-related penalty on the issues conceded by Petitioner if the understatements for 2008 and 2009 exceeds $5,000. The foregoing represents the Court's oral findings of fact and opinion in this case. In reaching our holdings herein, we have considered all arguments made and to the extent not mentioned, we conclude that they are moot, irrelevant or without merit. (Whereupon, at 10:01 a.m., the bench opinion in the above-entitled matter was concluded.) // Heritage Reporting Corporation (202) 628-4888