TAX COURT OPINION

Case: Rodney William Gattie
Docket Number: 2782-15
Judge: Morrison
Opinion Type: bench
Filed: 03/03/2016
Pages: 14

RODNEY WILLIAM GATTIE, Petitioner v. UNITED STATES TAX COURT WASHINGTON, DC 20217 KVC ) ) ) ) Docket No. 2782-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice of 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 Richard T. Morrison, at Columbia, South Carolina, containing his oral findings of fact and opinion rendered at the trial session at which the case heard. In accordance with the oral findings of fact and opinion, an appropriate order will be issued. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. March 3, 2016 SERVED Mar 04 2016 Capital Reporting Company 3 1 Bench Opinion by Judge Richard T. Morrison 2 November 6, 2015 3 Rodney William Gattie v. Commissioner 4 Docket No. 2782-15 5 THE COURT: The Court has decided to render 6 Oral Findings of Fact and Opinion in this case. The 7 following represents the Court's Oral Findings of 8 Fact and Opinion, which shall not be relied on as 9 precedent in any other case. This bench opinion is 10 made pursuant to the authority granted by section 11 7459(b) of the Internal Revenue Code,- and Rule 152 of 12 the Tax Court Rules of Practice and Procedure. 13 Unless otherwise indicated, all references to 14 sections are to sections of the Internal Revenue Code 15 in effect for the tax year 2008, and all references 16 to Rules are to the Tax Court Rules of Practice and 17 Procedure. 18 Findings of Fact. The IRS received the 19 following 12 information returns from payors stating 20 that they paid amounts totaling $73,796 to Gattie 21 during 2008: A Form 1099-S, "Proceeds from Real i 22 Estate Transactions", from Varner & Adams, P.C., in 23 the amount of $11,000 for capital gains from the sale 24 of real estate; a Forni 1099-INT, "Interest Income" 25 from SunTrust Bank in the amount of $147 for savings (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 4 1 2 3 4 5 bond interest income; a Form 1099-INT from SunTrust Bank in the amount of $147 for savings bond interest income; a Form 1099-MISC, "Miscellaneous Income", from CHCS Services, Inc., in the amount of $24,460.32 for non-employee compensation; a Form 1099-MISC from 6 Mullen Insurance Services, Inc., in the amount of 7 $13,530 for non-employee compensation; a Form 1099- 8 MISC from NMC Field Services, LLC, in the amount of 9 $8,542 for non-employee compensation; a Form 1099- 10 MISC from Coventry Health and Life Insurance in the 11 12 amount of $5,413 for non-employee compensation; a Form 1099-MISC from United Healthcare Insurance in 13 the amount of $4,174 for non-employee compensation; a 14 Form 1099-MISC from Kingdom Insurance Group in the 15 amount of $2,950 for non-employee compensation; a 16 Form 1099-MISC from RPRDirect in the amount of $2,700 17 for non-employee compensation; a Form 1099-MISC from 18 American Life and Health Insurance Co. in the amount 19 of J5L-s of se04 for non-employee compensation; a Form 20 1099-MISC from Columbian Mutual Life Insurance 21 Company in the amount of $129 for non-employee 22 compensation. 23 In addition, the IRS received a Form 1099-S 24 from Varner & Adams, P.C., indicating that Marilyn 25 Gattie received $11,000 of capital gains from the (866) 448 - DEPO www.Capita1ReportingCompany.com 2015 Capital Reporting Company 1 2 sale of real estate. The record does not reveal her relationship to Gattie. The metMe amounts on 5 3 all 13 information returns total 4 5 -r-ye $84, 796. In August 2014, the IRS prepared a 6 substitute-for-return for Gattie's 2008 tax year. The 7 substitute-for-return showed the tax liability based 8 9 10 on the inclusion in Gattie's income of the $84,796 reported to the IRS on the information returns. On October 27, 2014, the IRS sent Gattie a 11 notice of deficiency for the tax year 2008 12 determining a deficiency for that year of $23,202, 13 based on the tax liability reflected on the 14 substitute-for-return. The notice also determined 15 that Gattie was liable that year for the failure-to- 16 file penalty, the failure-to-pay-tax penalty, and the 17 estimated-tax penalty. 18 19 On October 28, 2014, Gattie mailed the IRS a Form 1040EZ, "Income Tax Return for Single and 20 Joint Filers With No Dependents," for the 2008 tax 21 year. On this form, Gattie reported that he had no 22 income a and no tax liability. 23 Around the same time as he mailed the Form 24 1040EZ for 2008, Gattie mailed a Form 1040EZ to the 25 IRS regarding the 2007 tax year. The form was (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 6 1 2 3 4 received by the IRS on November 3, 2014. On the form, Gattie reported that he had no income and no tax liability. However, information returns received by the IRS from third-party payors demonstrate that 5 Gattie indeed earned income from various sources 6 during 2007. 7 8 9 10 At trial, the IRS conceded that Gattie earned only $11,000 in capital gains from the sale of real estate during 2008, not $22,000. Opinion. In resolving a case, the Tax 11 Court follows the precedent of the Court of Appeals 12 to which an appeal in this case would be 13 -se,..w.ee-14-be taken. See Golsen v. Commissioner, 54 14 T.C. 742, 756-758 (1970), aff'd, 445 F.2d 985 (10th 15 Circuit 1971.) An appeal of this case would go to 16 the circuit of Gattie's "legal residence" when he 17 filed his petition, unless the parties stipulate 18 venue in another circuit. See sections 7482 (b) (1) 19 and (b) (1) (A) , (b) (2) . The term "legal residence" 20 means "domicile". Whitehouse v. Commissioner, 963 21 F.2d 1, 1 (1st Circuit 1992).. "Domicile" means "the 2 2 p e r s o n wh e r e a p e r s o n ®ee.=whielee--a=SeeT=sen 23 habitually eats, sleeps and makes his home." Id. 24 at 2. It can be inferred that a 25 taxpayer's legal residence is the same as the address (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 1 written by the taxpayer on the Tax Court petition. GA RMM 7 2 3 Gattie filed his Tax Court petition in January 2015. He listed a South Carolina address on 4 his petition. South Carolina is in the Fourth 5 Circuit. 28 U.S.C. section 41 (2008). At trial he 6 claimed that the South Carolina address was merely a 7 mailing address and that he resided in Georgia. 8 Georgia is in the Eleventh Circuit. Id. However, his 9 claim was not made under oath. Moreover, he did not 10 give any further details about his living 11 circumstances at the time he filed the petition. We 12 conclude that he resided in South Carolina when he 13 filed the petition. Therefore, we follow the 14 precedent of the Fourth Circuit. 15 1. Gattie earned unreported income. The 16 Court of Appeals for the Ninth Circuit in 17 Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th 18 Circuit 1979), reversing 67 T.C. 672 (1977), held 19 that for the IRS to prevail in a case involving 20 unreported income, such as this one, there must be 21 some evidentiary foundation linking the taxpayer to 22 the alleged income-producing activity, The Fourth 23 Circuit follows Weimerskirch. Williams v. 24 Commissioner 999 F.2d 760, 764 (4th Circuit 1993), 25 affirming T.C. Memo 1992-153. The Eleventh Circuit (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 8 1 also follows Weimerskirch. See Gatlin v. 2 Commissioner, 754 F.2d 921, 923 (11th Circuit 1950 -- 3 1985), affirming T.C. Memo 1982-489. The IRS 4 produced evidence, in the form of a "wage and income 5 6 transcript". This showed that the IRS received information returns from third-party payors who paid 7 Gattie the amounts it determined were income (with 8 9 the exception of the 11,000 capital-gain amount the IRS conceded.) The Weimerskirch requirement is 10 therefore satisfied. See Banister v. Commissioner, 11 T.C. Memo. 2008-201, slip op, at 5, and authorities 12 cited therein. Furthermore, Gattie did not dispute 13 his connection to income-producing activities. He 14 argued only that the payors were not connected with 15 the federal government, among other groundless legal 16 arguments. 17 Section 6201(d) provides that if a taxpayer 18 asserts a reasonable dispute with respect to any item 19 of income reported on a third-party information 20 return and the taxpayer has fully cooperated with the 21 IRS, the IRS has the burden of producing reasonable 22 and probative information concerning the deficiency 23 in addition to the information return. Gattie's 24 dispute with the third-party information returns is 25 based on his theory that the third parties were not . . (866) 448 - DEPO www.CapitalReportingCompany.com _ . 2015 Capital Reporting Company 9 1 2 e no businesses connected with the federal government. This is not a reasonable grounds for 3 dispute. Furthermore, he did not show that he fully 4 5 6 7 8 9 cooperated with the IRS's requests for information. See section 6201(d). Therefore, the IRS does not have the burden of proof under section 6201(d). Although section 7491(a) may shift the burden of proof to the IRS in specified circumstances, Gattie did not satisfy the 10 prerequisites under section 7491(a)(1) and (2) for 11 12 13 14 such a shift. I conclude that Gattie received taxable income in 2008 in the amounts determined by the IRS (with the exception of the 11, 000 capital-gain amount 15 the IRS conceded(. 16 A portion of the income Gattie received was 17 determined by the IRS to be self-employment income. 18 Gattie did-not prove that the IRS's determination of 19 his liability for the self-employment tax was 20 incorrect. I conclude that this income is earnings 21 22 23 24 from self-employment under section 1402, subject to the tax imposed by ,ror,es 401. A 2. Gattie is liable for the failure-to- timely-file addition to tax. Section 6651(a)(1) 25 imposes an addition to tax if the taxpayer fails to (866) 448 - DEPO www.Capita1ReportingCompany.com 2015 Capital Reporting Company 10 1 2 timely file a tax return, unless the failure is due to a reasonable cause and not willful neglect. A 3 substitute-for-return prepared by the IRS is not 4 considered a return for this purpose. Section 5 6651(g)(1). The IRS has the burden of producing 6 evidence that imposing the failure-to-timely-file 7 addition to tax is appropriate. Section 7491(c); see 8 Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). 9 The IRS has satisfied its burden. First, the Form 10 11 12 1040EZ for tax year 2008 that Gattie mailed to the IRS in 2014 is not a valid return. The form, which reported that Gattie's income was zero, was not a 13 genuine attempt to report Gattie's income. Rather, 14 it was an expression of Gattie's groundless view that 15 only payments from businesses connected with the 16 federal government are taxable income. See Cabirac 17 v. Commissioner, 120 T.C. 163, 169 (2003) (stating 18 that "The majority of courts, including this Court, 19 have held that generally, a return that contains only 20 21 zeros is not a valid return.") Second, even if the Form 1040EZ had been a valid return, it would not 2~2 have been c filed timely. Gattie had to file his 23 return on April 15, 2009. He did not mail the Form 24 1040EZ to the IRS until October 28, 2014. See Higbee 25 v. Commissioner, 116 T.C. at 447. (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company Once the IRS produces evidence that the 11 taxpayer is liable for the addition to tax, the taxpayer must .._-..-,, provide,M. sufficient evidence to persuade the Court the IRS's 1 2 3 4 5 determination is incorrect. See id. at 447-448. The 6 addition to tax is inapplicable if the taxpayer's 7 8 failure to file the return was due to reasonable cause and not willful neglect. See section 9 6651(a)(1). Gattie testified that he did not timely 10 file a tax return for 2008 because he was awaiting 11 12 the IRS's response to his request for copies of the information returns sent to the IRS by third-party 13 payors. The record reveals, however, that Gattie's 14 request for IRS records -- made in January 2014, long 15 after the deadline for the 2008 tax return -- did not 16 seek the type of IRS records that would show what 17 information returns were sent to the IRS by third- 18 party payors. Furthermore, Gattie's interest in the 19 information returns is not related to their accuracy 20 but to his groundless theory that income is taxable 21 only if received from businesses connected with the 22 federal government. Gattie was required by law to 23 keep his own records of his income and to timely .file 24 his returns based on these records. Sections 6001, 25 6012(a); Estate of Vriniotis v. Comissioner, 79 T.C. (866) 448 - DEPO www.Capita!ReportingCompany.com 2015 Capital Reporting Company 12 1 2 298, 311 (1982). ' His alleged concern with the accuracy of the information returns by third-party 3 payors did not justify his failure to file his 4 5 6 7 return. I conclude that Gattie has not shown reasonable cause for his failure to file his 2008 return. 3. Gattie is liable for the failure-to- 8 pay-tax-shown-on-the-return addition to tax. Section 9 6651(a)(2) imposes an addition to tax if the taxpayer 10 fails to timely pay the amount shown as tax on a tax 11 return, unless the failure is due to reasonable cause 12 and not willful neglect. The substitute-for-return 13 prepared by the IRS for 2008 is considered a return 14 15 for this purpose. Section 6651(g)(2). The IRS has the burden of producing evidence, under section 16 7491(c), that imposing this addition is appropriate. 17 The IRS has satisfied its burden because it 18 introduced transcriptsv-- Ats records -- ,showing that 19 Gattie p made no payments against his 2008 20 tax liability. See Winslow v. Commissioner, 139 T.C. 21 270, 275-276 (2012). Furthermore, Gattie does not 22 contend that he made any payments against his 2008 23 tax liability. 24 Gattie is required to prove that he had 25 reasonable cause for his failure to pay tax and that (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 1 the failure was not due to willful neglect. See id. 2 at 276. Gattie has not argued why, and he has not 3 presented evidence why, he failed to pay the tax for 13 2008. 4 5 4. Gattie is liable for the failure-to- 6 pay-estimated-tax addition to tax. Section 6654 (a) 7 imposes an addition to tax on individual taxpayers 8 who underpay their estimated income tax. The IRS 9 determined that Gattie is liable for the addition to 10 tax for 2008. A taxpayer has an obligation to pay 11 estimated tax for a particular year if he or she has 12 a "required annual payment" for that year. Section 13 6654 (d) . A "required annual payment" is /R 14 generally equal to the lesser of: (1) 90 percent of 15 the tax shown on the individual's return for that 16 year (or if no return is filed, 90 percent of his or 17 18 her tax for the year), or (2) if the individual filed a return for the immediately preceding taxable year, 19 100 percent of the tax shown on that return. Section 20 6654(d)(1). The IRS's burden of production under 21 7491(c) requires the IRS to produce, for each year 22 for which the addition is asserted, evidence that the 23 taxpayer had a required annual payment. See Wheeler 24 v. Commissioner, 127 T.C. 200, 211 (2006), affirmed, 25 521 F.3d 1289 (10th Circuit 2008). Gattie did not ·(866) 448 - DEPO www.Capita1ReportingCompany.com 2015 Capital Reporting Company 14 1 file valid tax returns for either 2008 or 2007. 2 Substitutes-for-returns are not considered returns for A 3 determining the required annual payment. See Duma v. 4 Commissioner, T. C. Memo. -304 slip op. 18 5 note 6 (2009) . Therefore, the "required annual 6 payment" is equal to 90 percent of Gattie ' s tax for 7 8 9 2008. The IRS has demonstrated that Gattie had a tax liability for 2008. In addition, it has established that he made no tax payments for the 2008 year. 10 Gattie does not contend he made any such payments har 11 does he argue for the application of any of the 12 defenses enumerated in section 6654(e) or establish 13 14 them through evidence. 5. Conclusions. Section 6673(a) 15 authorizes the Court to require the taxpayer to pay 16 the United States a penalty whenever it appears to 17 the Court that the taxpayer instituted or maintained 18 the proceeding before the Court primarily for delay 19 or that the taxpayer's position in the proceeding is 20 frivolous or groundless. Gattie took frivolous 21 positions in this case. The Court explained this to 22 Gattie at trial. Gattie is advised that if he takes 23 similar iti takes frivolous positions in 24 the future ,s , the 25 Court may impose the penalty. (866) 448 - DEPO www.CapitalReportingCompany.com 2015 Capital Reporting Company 1 To ~givé effect to the foregoing, decision 2 will be entered under Rule 155. This concludes the 3 Court's Oral Findings of Fact and Opinion in this 15 case. (WHEREUPON, at 12:14 p.m., the above- entitled matter was concluded.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.cont 2015