TAX COURT OPINION

Case: Agnes Zaballa Santos
Docket Number: 3202-13
Judge: Gustafson
Opinion Type: bench
Filed: 03/28/2014
Pages: 14

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 AGNES ZABALLA SANTOS, Petitioner, v. ) ) ) ) Docket No. 3202-13. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORD ER Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at New York, New York, on March 12, 2014, containing his oral findings of fact and opinion, 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 Gustafson at New York, New York, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. March 28, 2014 SERVED Mar 28 2014 Capital Reporting Company 3 1 Bench Opinion by Judge David Gustafson 2 March 12, 2014 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Agnes Zaballa Santos v. Commissioner Docket No. 3202-13 THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code, and Tax Court Rule 152, and it shall not be relied on as precedent in any other case. By Notice of Deficiency dated January 7, 2013 (Exhibit 5-J), the Internal Revenue Se'Évice (IRS) determined a deficiency in the Federal income tax of petitioner Agnes Zaballa Santos for the year 2010, on the basis of items of income that it attributed to Ms. Santos. As to the wage income and the unemployment income, we hold in favor of the IRS. But as to the interest income, we hold in favor of Ms. Santos. The case was tried in New York City on 23 March 10 and 11, 2014. Ms. Santos represented 24 25 herself and Respondent was represented by Gennady Zilberman and Rose Gole. 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company MATTERS IN DISPUTE Ms. Santos attempted in this suit to obtain 4 a hearing for a wide variety of grievances that are outside our jurisdiction, (and that we refer to hereafter as "extra-jurisdictional claims"), including: claims of underpaid compensation due to her from her employer; claims of underpaid unemployment benefits; claims against her landlord for a wrongly withheld security deposit, overcharged rent, and wrongly garnished wages; claims of understated entitlement of her benefits from the Social Security Administration; claims of delay or denial of Social Security Benefits for her elderly parents; claims for survivor's benefits due to her under a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 military pension; and claims that she is due 19 compensation for "torture" or retaliation by one or 20 more of the entities that ignored or denied these 21 22 23 24 25 claims. The only subject matter properly before us, however, is the redetermination of the deficiency of tax that the IRS assessed against her for the year 2010. During the trial the IRS conceded: that Ms. 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 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 Santos submitted to the IRS, and intended to file, the return appearing in our record as Exhibit 4-P, and that it constitu,tes her 2010 return; that the re-(cid:16)040M purported income tax reflected in Exhibit 83-R was not filed by Ms. Santos or on her behalf; that the filing of that purported return and the $9,613 refund that it prompted will be treated by the IRS as a case of identity theft; that Ms. Santos did not receive the interest income of $4 from J.P. Morgan Chase Bank; that Ms. Santos is entitled to the dependency exemption deductions and the filing status she claimed on her return, (Ex.4-P). The remaining issues to be decided are income issues, i.e.--, whether Ms. Santos received: (1) wage income of $19,708 from the New York City Department of Education, (2) unemployment compensation of $10,500 from the New York City Department of Labor, and (3) interest income of $28 from Apple Bank. STIPULATIONS OF FACT The IRS filed a pretrial memorandum on February 24, 2014. The Court issued an order to the parties on February 27, 2014 and on March 4, 2014 the Court held a pretrial phone conference with Ms. Santos and IRS counsel. In both the February 27 order and the March 4 conference, the Court reminded 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 the parties of their obligation under the standing 2 pretrial order to exchange exhibits and to cooperate 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 in preparing a stipulation of the undisputed facts. The Court suggested that the IRS include the proposed stipulation facts that it did not dispute and ) documents whose authenticity it did not dispute, even if that approach would require the IRS to reserve relevance and hearsay objections in the text of the stipulation. The Court learned at trial that the IRS had followed this suggestion. However, when the case was called for trial, the Court learned that Ms. Santos had not signed the IRS' proposed stipulation, nor made a counterproposal. The Court determined that whether from stubbornness, confusion, or exhaustion, or some combination thereof-- Ms. Santos did not reasonably cooperate in the stipulation process. The Court therefore spent well over an hour of trial time going through the 86 paragraphs of the proposed stipulation 20 wrF the parties, identifying the assertions that Ms. 21 22 23 Santos admitted and those she did not, and identifying the documents whose authenticity she disputed and those she did not. The Court prepared a 24 markup of the proposed stipulation (identified as 25 Exhibit 81-C) and admitted it into evidence as a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company reflection of Ms. Santos' admissions and, in the alternative, as deemed stipulations pursuant to Rule 7 91(e). FINDINGS OF FACT 1 2 3 4 5 Wage Income 6 7 8 9 10 11 As in other years, in 2010 Ms. Santos was employed by the New York City Schools as a substitute teacher. For that work she received in 2010 wages totaling $19,708, which included a payment of $12,762 in payment of her claim for back pay. Stip. 14. The check by which she was paid the $12,762 (less 12 withholdings) replaced an incorrect check for $11,128 13 14 15 16 17 18 19 20 21 22 23 less withholdings that she returned. Ms. Santos apparently believes that the notice of deficiency determined that she should be taxed on this incorrect and returned payment, but it did not. On her return, (Ex. 4-P), she reported wages of $19,708; and at trial she admitted she received those wages. Unemployment Income Because Ms. Santos' employment as a substitute was not full-time, she claimed and obtained unemployment benefits in 2010. She admits this. 24 Stip. 28. The records of the State Department of 25 Labor show unemployment payments for Ms. Santos' 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 benefit totaling $10,500 (Ex. 24-J), and records obtained by Ms. Santos from J.P. Morgan Chase Bank (Ex. 23-J) show that the relevant amounts were deposited in the account for which Ms. Santos had the debit card. However, Ms. Santos left the U.S. and departed for the Philippines on March 29, 2010 and returned October 8, 2010. She testified that she did not make unemployment claims during that period, btre someone else must have engineered the payments to her bank, and that she did not withdraw or otherwise receive the funds deposited into her account. She testified that she has "rpo idea" how much of the $10, 500 she actually ecccivcd, and she speculates that a bank employee may have somehow engineered the deposits and then withdrawn the funds. There is no evidence supporting her speculation, and she did not convince us that she did not receive all the money. The bank records show that only deposits nd 20 withdrawals) were made during the period that she and 21 22 23 24 25 her debit card were in Philippines, and that on the day she returned to the U.S., a withdrawal of $3,851 was made from the Chase account. She offers no explanation for this remarkable coincidence. We conclude that the $10,500 was her income. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Interest Income .Ms. Santos previously had an interest- bearing account at Apple Bank. However, she closed the account in 2006 and never maintained an account at that bank thereafter. She testified and we believe that she received no income from Apple Bank in 2010. Tax Returns and IRS Examination Ms. Santos retained a return preparer to help her prepare her 2010 federal income tax return. However, it appears that thi return, (Ex.4-P), was not received by the IRS ender April 12, 2012 (see Ex. 82-R), after Ms. Santos--expecting a refund that had never been given to her--made what she believes was a second submission of the return (see Ex. 4-P, page 19 of 493) . She apparently signed another copy of the return in September 2012 (see page 11 of 493) and submitted it again (see Ex. 82-R). However, in November 2011 (before receiving Ms. Santos' actual return (Exhibit 4-P)) the IRS received a return with Ms. Santos' Social Security number and 23 with the name "Agnes Santos" (and no middle name) but 24 with an address in Washington state to which Ms. 25 Santos has no connection. 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 10 1 2 3 4 The return reported withheld federal income tax greater than Ms. Santos' actual withholdings, and requested that a refund of $9,613 be made to a bank in which Ms. Santos has no account. The refund was 5 made. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The IRS thereafter examined the November 2011 return, assumed it was Ms. Santos' return, and determined that the return claimed an excessive refund and that it failed to report income that third party reporters had attributed to Ms. Santos. The IRS therefore determined a deficiency of tax and issued a Notice of Deficiency dated January 7, 2013. Ms. Santos timely filed an informal petition on February 5, 2013, and an amended petition on April 2, 2013. I. Burden of Proof OPINION The IRS' determination is presumed correct, and taxpayer bears the burden of proof and any adJustment to the income the IRS determined. Rule 142(a), Welch v. Helvering, 290 U.S. 111, 115 (1933). For all three of the income issues in this case, the IRS relies on information of purported income to Ms. Santos that was reported to the IRS by third party payors on Forms W-2 and 1099.Section 6201(d) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 provides: (d) Required reasonable verification of information returns.-- In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of An income reported on +he- information return filed with the Secretary by a third party, and the taxpayer has fully cooperated with the Secretary, A the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency, in addition to such information return. In this case, in response to the third party reporting, Ms. Santos asserted disputes that were not inherently unreasonable--i.e., that the Form W-2 from the school system included a payment that she had returned; that the Form 1099 from the unemployment Commission included payments that she had not requested or received; and that she had no account at nor received any interest from, the bank that submitted a Form 1099 to the IRS. As we show below, the IRS responded to these disputes with "reas.onable and probative information...in additiop to the hN 19so CAGC q' information returns" ·indicates the wages and unemployment compensation, but not the interest. 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.Capita1ReportingCompany.com Capital Reporting Company 12 II. Wages Ms. Santos admitted 44ww receipt of $19,708 from the school system, and she reported that amount on her return. Her only dispute was based on her apparent misundérstanding about the supposed inclusion of a returned payment in her income. The IRS demonstrated, however, that the income attributed to her in the Notice of Deficiency was all substantiated by the payroll records of the school system, and that the Notice of Deficiency attributed to Ms. Santos only that substantiated income which she also reported on her return. III. Unemployment Compensation After Ms. Santos disputed the $10,500 of unemployment benefits reported on Form 1099, the IRS demonstrated by agency records that benefits totaling $10,500 were awarded to Ms. Santos and demonstrated by bank records that those amounts were credited to her account. Her speculation about a bank employee somehow inducing the unemployment commission to make payments to Ms. Santos' account is unlikely-- requiring that the wrong-doer have more information about Ms. Santos than seems possible, and/or have collaborated with someone at the Unemployment Commission--and it is no more likely than the 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 13 1 possibility that Ms. Santos(or someone known to her) 2 3 4 applied for the unemployment benefits even when Ms. Santos was in the Philippines. Her speculation that the wrong-doer came up with 5 means to withdraw funds from the account--but did so 6 7 only starting on the day when Ms. Santos returned to the U.S.--is no more likely than that Ms. Santos 8 withdrew the funds herself. We do not find that Ms. 9 Santos committed a fraud, a finding that would 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 require clear and convincing evidence. We simply hold that she failed to prove that she did not receive the income. IV. Interest Ms. Santos disputed the Apple Bank's Form 1099, which asserted payment of $28 of interest in 2010, with the clear and simple assertion that she had no acco nt at that bank after 2006. The IRS did CÆCA noth put on any additional evidence from the bank or elsewhere to contradict her testimony or to show the payment or crediting of interest to her. We therefore find that Ms. Santos carriedM±e burden of proof on this issue. So that Ms. Santos' liability can be recalculated to reflect the IRS' concessions and our holding as to the interest income, decision will be 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 14 entered pursuant to Rule 155. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:08 a.m., the above- entitled matter was concluded.) 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 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 15 CERTIFICATE OF TRANSCRIBER AND PROOFREADER CASE NAME: Agnes Zaballa Santos v. Commissioner DOCKET NO.: 3202-13 We the undersigned, do hereby certify that the foregoing pages, numbers 1 through 15, inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Michael McCann on March 12, 2014, before the United States Tax Court at its session in New York, New York, in accordance with the applicable provisions of the current verbatim reporting contract of the Court, and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. Margaret Caraway Holmes 3-15-14 (Transcriber) (Date) Ernest Campbell 3-17-14 ) (Proofreader) (Date) 866.488.DEPO www.CapitaIReportingCompany.com