TAX COURT OPINION

Case: Justin Richard Gilmore & Brianna Candace Osnain
Docket Number: 6341-18
Judge: Marvel
Opinion Type: bench
Filed: 12/19/2019
Pages: 15

JRB UNITED STATES TAX COURT WASHINGTON, DC 20217 JUSTIN RICHARD GILMORE & BRIANNA CANDACE OSNAIN, Petitioner(s), v. ) ) ) ) ) ) Docket No. 6341-18. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERD that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge L. Paige Marvel at Denver, Colorado, on October 30, 2019, containing the Court's oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, an appropriate decision will be entered. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. December 19, 2019 SERVED Dec 20 2019 RECEIVED 11/22/19 IN THE UNITED STATES TAX COURT BD In the Matter of: JUSTIN RICHARD GILMORE & BRIANNA CANDACE OSNAIN, ) ) ) Docket No. £2 S 10 ) 6341-r Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Pages: 1 through 13 Place: Denver, Colorado Date: October 30, 2019 (973)406-2250loperations@escribers.net!www.esaibersnet IN THE UNITED STATES TAX COURT 1 In the Matter of: JUSTIN RICHARD GILMORE & BRIANNA CANDACE OSNAIN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. )' ) . ) Docket No. 6341-18 ) ) ) ) ) ) ) ) ) Byron G. Rogers U.S. Courthouse 1929 Stout Street Room C502, 5th Floor Denver, Colorado 80294 October 30, 2019 The above-entitled matter came on for bench opinion, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 pursuant to notice at 12:17 p.m. BEFORE: HONORABLE L. PAIGE MARVEL Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 16 17 18 19 20 21 22 23 24 25 (973)406-2250loperations escribermetlwww.escribersaet P R O C E E D I N G S 2 (12:17 p.m.) THE CLERK: Calling from the calendar, docket number 6341-18 Justin Richard Gilmore and Brianna Candace Osnain. (Whereupon, a bench opinion was rendered.) 1 2 3 a 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (9733406-2250|operations escribers.netlwww.escribenaet Bench Opinion by Judge L. Paige Marvel October 30, 2019 Justin Richard Gilmore & Brianna Candace Osnain v. Commissioner 2 3 4 | 5 Docket No. 6341-18 3 6 7 8 9 10 11 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. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the 12 authority granted by section 7459(b) of the Internal 13 Revenue Code of 1986 (Code) as amended and Rule 152 of the 14 15 Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references in this 16 bench opinion are to the Code as amended in effect for the 17 years at issue, and Rule references are to the Tax Court 18 Rules of Practice and Procedure. Some monetary amounts 19 have been rounded to the nearest dollar. 20 Petitioners Justin Richard Gilmore and Brianna 21 Candace Osnain appeared pro sese. Steven I. Josephy 22 23 24 appeared on behalf of respondent. Respondent determined income tax deficiencies of $7,371, $8,782, and $6,821 for petitioners' tax years 25 2014, 2015, and 2016, respectively, and accuracy-related } cribers (973)406-2250|opentions®erokermet|www.esaibersmet 4 penalties under section 6662(a) of $1,338, $1,756, and $1,364 with respect to petitioners' 2014, 2015, and 2016 tax years, respectively. The issues for decision are: (1) whether petitioners are liable for Federal income tax deficiencies for tax years 2014 through 2016; (2) whether petitioners are liable for accuracy-related penalties under section 6662(a); and (3) whether petitioners are liable for a penalty under section 6673 for instituting proceealngs primarily for delay or for asserting frivolous or groundless positions. Findings of Fact Some of the facts have been stipulated, and the 1 2 3 4 5 6 7 8 9 10 11 12 13 Stipulatioh of Facts is incorporated herein by this reference. 14 15 Petitioners resided in Colorado when they 16 petitioned the Court. During the years at issue, 17 petitioner Justin Gilmore worked for Ricoh USA, Inc., and 18 Petitioner Brianna Osnain worked for GEICO Insurance 19 Company. 20 21 22 23 24 Petitioners filed original Forms 1040, U.S. Individual Income Tax Returns, for all years at issue reporting their wage income and attaching Forms W-2, Wage and Tax Statement, reflecting the wage income reported on their return. Petitioners failed to report on those 25 original returns various amounts of nonemployee income Å hcríbers 73)4C64250{operationsrpescriben.net jymwsscribersnet 5 1 2 3 a 5 6 7 8 9 received in the relevant years ($425 in 2014, $3,058 in 2015, and $1,839 in 2016). Petitioners also failed to report a taxable distribution of $3,255 from a retirement account in 2014. Each year, petitioners filed a Schedule C reporting $0 in gross receipts but claiming substantial business expense deductions ($11,689 in 2014, $19,821 in 2015, and $9,744 in 2016). Each year, petitioners also filed a Schedule E claiming substantial expenses ($28,830 in 2014, $31,493 in 2015, and $36,196 in 2016). 10 Petitioners also claimed various other deductions and credits. 11 12 After filing their original income tax returns, 13 petitioners submitted amended returns to the Internal 14 Revenue Service (IRS), reporting $0 in income in each year 15 on the basis that the moneys they received in the relevant 16 years did not constitute income within the meaning of the 17 18 19 20 21 22 tax law. The IRS did not process the amended returns. Petitioners' original returns for tax years 2014 through 2016 were selected for examination. During the exam, the IRS revenue agent adjusted petitioners' income to reflect the unreported nonemployee compensation and retirement distribution payments reported as paid to 23 petitioners in various information returns filed with 24 25 respondent by the payors. The revenue agent also requested documentation to substantiate petitioners' (973)406-2250 ] operations@extibers.net J www,escribers.net claimed deductions, expenses, and credits. Petitioners 6 did not provide the requested documentation. On January 9, 2018, respondent issued to petitioners a notice of deficiency determining the deficiencies and accuracy-related penalties noted above. On April 2, 2018, petitioners timely petitioned this Court for redetermination of their deficiencies. In the petition, petitioners did not dispute any of the specific adjustments to income and deductions; they claimed only 1 2 3 4 5 6 7 8 9 10 that the receipts they received during the years at issue 11 were not income on which they had to pay income tax. 12 13 14 I. Underreported Income Discussion The Commissioner's determinations in a notice of 15 deficiency are presumed correct, and the taxpayer 16 generally bears the burden of proving that those 17 determinations are incorrect. Rule 142(a); Welch v. 18 Helvering, 290 U.S. 111, 115 (1933). Petitioners do not 19 challenge the amounts of respondent's adjustments in the 20 notice of deficiency. Petitioners contend only that the 21 wages and other payments they received from various 22 sources are not taxable income under relevant law. 23 secause petitioners raise only legal issues, we decide 24 whether they are liable for the deficiencies at issue 25 without regard to the burden of proof. cribers 973) 406-2250 j operations®escribers.net I wwwascribers.n et Section 61(a) defines gross income as "all 7 income from whatever source derived" including compensation paid for services and pension distributions. Notwithstanding that petitioners bear the burden of proving that respondent's determinations in the notice of deficiency are incorrect, they introduced no credible evidence challenging the amounts of the adjustments. Instead, they argued only tiresome and frivolous legal theories that the "receipts" they received in each year 1 2 3 4 5 6 7 8 9 10 are not taxable income. Specifically, petitioners contend 11 12 that: (1) the income tax is an excise tax that only imposes liability if the taxpayer engages in certain, ill- 13 defined "privileged activities"; (2) the information 14 returns relied upon by respondent in determining 15 Petitioners' deficiencies are hearsay; and (3) respondent 16 has not met his burden of proof to demonstrate that 17 petitioners engaged in any of these so-called "privileged 18 activities" in generating their livelihoods. 19 We need not linger on these spurious and 20 shopworn theories, other than to note that petitioners 21 22 not respondent, bear the burden of proof in this proceeding, and they have introduced no credible evidence 23 in support of their position. As to their legal 24 arguments, they have consistently been rejected by the IRS 25 and by many tribunals. The IRS has compiled these cdbers t973)406-2260jopeutions®esenbets.net|www.esaibeisnet 8 1 2 3 4 5 6 7 8 9 opinions in its publication, "The Truth About Frivolous Tax Arguments", readily available on the IRS's website at www.irs.gov/pub/taxpros/frivolous_truth_march_2018.pdf. We need not address petitioners' frivolous arguments further. As was aptly stated by the Court of Appeals in Crain v. Commissioner, 737 F.2d 1417,. 1417 (5th Cir. 1984), "We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest these arguments have some colorable 10 merit." They do not. Petitioners have offered only 11 12 frivolous and groundless arguments. We therefore sustain respondent's determinations with respect to the 13 deficiencies. 14 15 16 17 II. Section 6662(a) Accuracy-Related Penalty Pursuant to section 6662(a), respondent may determine an accuracy-related penalty if, among other causes, an underpayment resulted from negligence or 18 disregard of rules and regulations. Respondent, however, 19 bears the initial burden of production regarding the 20 accuracy-related penalty under section 6662(a). To meet 21 22 23 24 this burden of production, respondent must introduce evidence that it is appropriate to impose the penalty and that respondent complied with the supervisory approval requirements imposed by section 6751(b) (1). Clay v. 25 Commissioner, 152 T.C. (slip op. at 39) (Apr. 24, 973)406-2250|operations escn¼rs,net[wwwascibers.net 9 2019); Graev v. Commissioner, 149 T.C. 485, 492-493 (2017). Section 6751(b) (1) provides that no penalty shall be assessed unless respondent secures written supervisory approval of the initial determination to assess the Penalty before the first formal assertion of the penalty is transmitted to the taxpayer. See Clay v. Commissioner, 152 T.C. at (slip op. at 40). To attempt to meet his burden of production, respondent introduced limited and 1mprecise evidence. 1 2 3 4 5 6 7 8 9 10 Specifically, respondent introduced a Civil Penalty 11 Approval Form (CPA Form) in an effort to prove the date of 12 managerial approval. Respondent also introduced Letter 13 14 692, Request for Consideration of Additional Findings, dated October 26, 2017, and a Form 4549, Income Tax 15 Examination Changes, dated Junà30, 2017, in an effort to 16 prove the date of the initial determination to assert 17 penalties against petitioners. 18 The CPA Form bears a written signature 19 purportedly approving the assertion of the section 6662(a) 20 penalty on the basis of negligence, but the signature is 21 22 23 24 25 illegible. Respondent has offered no evidence clarifying the identity of the individual whose signature it may be. The CPA Form bears two conflicting, handwritten dates near the signature. The first date is September 14, 2017. That date, however, is crossed out and another date, cribers 973)40/c2250|operations@escribersnet}mw(escribersnet December 13, 2017, is inserted below it. Without some clarifying evidence, it is impossible for us to determine 10 when the penalties were approved or by whom. Additionally, the Letter 692 and related Form 4549 does not assist us in determining when the initial determination to assert penalties was actually made and transmitted to petitioners. The letter is dated October 26, 2017, and the Form 4549 is dated June 30, 2017. The Form 4549 refers to revisions from "original proposed changes", and states that it supersedes a prior report dated June 16, 2017. There is no evidence in the record that would allow us to ascertain the date when the initial 1 2 3 4 5 6 7 8 9 10 11 12 13 determination to assert the section 6662(a) penalty was 14 made and transmitted to petitioners. 15 16 In short, on this record we cannot identify (1) who approved the initial determination to assert the 17 accuracy-related penalty, (2) when that purported approval 18 occurred, or (3) when the initial determination to assert 19 the penalty was first transmitted to the taxpayer. 20 Respondent has therefore failed to meet his burden of 21 Production. We do not sustain the section 6662(a) 22 penalties determined in the notice of deficiency. 23 24 111. Section 6673 eenalty Section 6673(a) (1)(B) authorizes the Court to 25 require a taxpayer to pay to the United States a penalty cdbers $73)406-2250lopentions@escribersaet|www.escribers et 11 1 2 3 4 5 6 7 8 9 not to exceed $25,000 whenever it appears that the taxpayer's position in a proceeding is frivolous or groundless. It is within our discretion whether to impose the section 6673 penalty. For example, we have often imposed the penalty in cases where taxpayers have persisted in presenting arguments in administrative and judicial proceedings after fair warning that those arguments were frivolous. See Burke v. Commissioner, 124 T.C. 189, 197 (2005); Rodriguez v. Commissioner, T.C. 10 Memo. 2009-92; Ioane v. Commissioner, T.C. Memo. 2009-68. 11 12 We repeatedly warned petitioners that if they advanced frivolous arguments in this case, we may impose a 13 penalty under section 6673. Specifically, we warned 14 petitioners at the calendar call for this trial session, 15 before their trial commenced, during trial, and before 16 their closing argument. Petitioners nevertheless 17 18 steadfastly'refused to abandon the arguments we warned them against pursuing. Rather than present a case 19 contesting the merits of respondent's determinations in 20 21 the notice of deficiency, either by providing evidence that some portion of moneys received in each year was 22 Properly not taxable or by providing substantiation in 23 support of their claimed Schedule C and E expenses, 24 petitioners chose to continue headlong with their 25 frivolous arguments. This is unacceptable. Under the HEEI (973)406-2250 hperations@escriber s.ne t l wwwascribers.net 12 circumstances, we exercise our discretion and impose a Penalty pursuant to section 6673(a)(1) of $5,000. This amount is commensurate in scope with the deficiencies for which petitioners are liable, reflects the numerous warnings petitioners elected to ignore, and is sufficient in amount to serve as a deterrent against petitioners asserting frivolous and groundless arguments that waste this Court's limited time and resources. We have considered the remaining arguments made 1 2 3 4 5 6 7 8 9 10 by the parties and, to the extent not discussed above, 11 conclude those arguments are irrelevant, moot, or without 12 merit. To reflect the foregoing, an appropriate decision 13 will be entered. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:36 p.m., the above-entitled matter was concluded.) 14 15 16 17 18 19 20 21 22 23 24 25 b cribers c)73)4064250|operations@escribers.netíwww.escribersnet CERTIFICATE OF TRANSCRIBER AND PROOFREADER 13 CASE NAME: Justin Richard Gilmore & Brianna Candace Osnain v. Commissioner DOCKET NO.: 6341-18 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Roger Meyers on October 30, 2019 before the United States Tax 1 2 3 4 5 6 7 8 9 10 Court at its session in Denver, CO, in accordance with the 11 12 13 14 15 16 17 18 19 20 22 23 24 25 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. / 771 v / / d)10bF . Amy Parnell, CDLT-179 Transcriber Jenn fer ndeman Proofreader 11/21/19 Date 11/21/19 Date criben (973)406-2250|operations@escribers.netlwww.escibers.net