TAX COURT OPINION

Case: Joshua Matthew Haney
Docket Number: 24957-21
Judge: Kerrigan
Opinion Type: bench
Filed: 03/02/2023
Pages: 9

United States Tax Court Washington, DC 20217 JOSHUA MATTHEW HANEY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 24957-21. 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 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 for respondent. (Signed) Kathleen Kerrigan Chief Judge Served 03/02/23 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 Bench Opinion by Judge Kathleen Kerrigan December 20, 2022 3 Joshua Matthew Haney v. Commissioner of Internal Revenue Docket No. 24957-21 THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (Code) and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. By notice of deficiency dated April 7, 2021, the Internal Revenue Service (IRS or respondent) determined a deficiency in petitioner's Federal income tax for 2017 of $3,055 and a penalty of $446 pursuant to section 6662(a). Trial of this case was conducted on December 19, 2022, during the Los Angeles, California trial session. Petitioner represented himself and James J. Yeh 1 2 3 4 5 6 7 8 9 represented respondent. The parties' stipulation of facts 4 and accompanying exhibits were admitted into evidence. Petitioner was the only witness. We find the following facts. FINDINGS OF FACT Petitioner resided in California when he timely filed his petition. During 2017 petitioner was an employee of Toy Locker, Inc. He received a W-2, Wage and Tax Statement reporting $33,875 in wages from Toy Locker, 10 Inc. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Petitioner timely filed his Form 1040, U.S. Individual Income Tax Return for 2017. On his return petitioner reported zero dollars for wages. Respondent's managing supervisor approved the section 6662(a) penalty on April 5, 2021. Petitioner filed a motion to dismiss for lack of jurisdiction, and the motion was denied. Respondent filed a motion to impose penalty pursuant to section 6673. OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). In unreported income cases such as this, the Commissioner must establish "some evidentiary 1 2 3 4 5 6 7 8 9 foundation" connecting the taxpayer with the income- 5 producing activity or demonstrating that the taxpayer actually received unreported income. See Weimerskirch v. Commissioner, 596 F.2d 358, 361-62 (9th Cir. 1979), rev'g 67 T.C. 672 (1977); see also Edwards v. Commissioner, 680 F.2d 1268, 1270-71 (9th Cir. 1982) (holding that the Commissioner's assertion of a deficiency is presumptively correct once some substantive evidence is introduced demonstrating that the taxpayer received unreported 10 income). 11 12 13 14 15 16 17 18 19 20 21 22 If the Commissioner introduces some evidence that the Taxpayer received unreported income, the burden shifts to the taxpayer, who must establish by a preponderance of evidence that the deficiency was arbitrary or erroneous. See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff'g T.C. Memo. 1997-97. Respondent met the burden of production as to the unreported income determined in the notice of deficiency. Respondent produced a Certified Wage and Income Transcript for a Form W-2 2017. Petitioner does not dispute receipt of the income. He has not shown that the burden of proof should shift to respondent as to any relevant factual 23 issue. 24 25 Gross income generally includes all income from whatever source derived, including wages. § 61(a); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 6 (1955). The United States Supreme Court has held consistently that Congress defined gross income to exert "the full measure of its taxing power." Commissioner v. Glenshaw Glass Co., 348 U.S. at 429 (quoting Helvering v. Clifford, 309 U.S. 331, 334 (1940)). Petitioner did not make any valid arguments that his wages are excludable from gross income because of any specific provision of law. See Rodriguez v. Commissioner, T.C. Memo. 2009-92. Instead, he advanced frivolous constitutional and statutory arguments that wages from Toy Locker, Inc. are not income for federal income tax purposes. We do not need to discuss petitioner's frivolous and groundless arguments. See Heisey v. Commissioner, T.C. Memo. 2002-41, slip op. at 4, aff'd, 59 F. App'x 233 (9th Cir. 2003). "[T]o do so might suggest that these arguments have some colorable merit." Crain v. Commissioner, 737 F.2d 1417 (5th Cir. 1984). Section 6662(a) Penalty Respondent bears the burden of production with respect to the penalty imposed by section 6662(a). § 7491(c). This burden of production includes producing evidence that respondent has complied with the procedural requirements of section 6751(b). Frost v. Commissioner, 154 T.C. 23, 34 (2020). 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 1 2 3 4 5 6 7 8 9 Respondent must show compliance with section 7 6751(b)(1), which requires that certain penalties be personally approved in writing by the immediate supervisor of the individual making the determination. See Graev v. Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016). Respondent has satisfied the burden of production with regard to supervisory approval requirement of section 6751(b). Approval was obtained prior to the issue of notice of 10 deficiency. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The written supervisory approval is not required to take any specific form. See Palmolive Bldg. Invs., LLC v. Commissioner, 152 T.C. 75, 85-86 (2019). But it generally must be obtained no later than (1) the date on which the IRS issues the deficiency notice, or (2) the date, if earlier, on which the IRS formally communicates to the taxpayer the Examination Division's determination to assert a penalty. See Belair Woods, LLC v. Commissioner, 154 T.C. 1, 15 (2020). In Laidlaw's Harley Davidson, the U.S. Court of Appeals for the Ninth Circuit considered the timeline for obtaining supervisory approval of "assessable penalties," which are not subject to deficiency procedures. 29 F.4th 1066, 1071 (9th Cir. 2022), rev'g and remanding 154 T.C. 68 (2020). The Ninth Circuit held that, for an assessable 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 penalty, supervisory approval is timely if secured before 8 the penalty is assessed or "before the relevant supervisor loses discretion whether to approve the penalty assessment." Id. at 1074. We follow the relevant precedent of the Court of Appeals to which an appeal would generally lie. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971). In this case an appeal would lie in the Ninth Circuit, which has not addressed this issue in a deficiency case. Because the supervisor's signature is timely under either standard, the Court does not address the potential conflict. Section 6662(a) imposes a 20% accuracy-related penalty on any portion of an underpayment of tax required to be shown on a return if, as provided by section 6662(b)(1), the underpayment is attributable to "[n]egligence or disregard of rules or regulations." Negligence includes "any failure to make a reasonable attempt to comply" with the internal revenue laws and "disregard" includes any careless, reckless, or intentional disregard." § 6662(c). The accuracy-related penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows that he or she had reasonable cause and acted in good faith. § 6664(c)(1); see Higbee v. Commissioner, 116 T.C. 438, 446-47 (2001). Petitioner 9 acted with intentional disregard for the rules and regulations. Accordingly, he is liable for the section 6662(a) penalty for 2017. Section 6673 Sanctions Respondent moved that the Court impose sanctions against petitioner pursuant to section 6673(a)(1). Section 6673(a)(1) authorizes the Court to require the taxpayer to pay to the United States a penalty in an amount not to exceed $25,000 whenever it appears to the Court that the taxpayer instituted or maintained the proceeding primarily for delay or that the taxpayer's position in the proceeding is frivolous or groundless. We will deny respondent's motion. Although petitioner did advance frivolous arguments during trial, he did cooperate during trial and stipulated to facts. We warn petitioner that if he does not abandon his misguided positions, it is very likely that in future cases before this Court a penalty will be imposed. A decision will be entered for respondent sustaining the notice of deficiency. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:10 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 10 CASE NAME: Joshua Matthew Haney v. Commissioner DOCKET NO.: 24957-21 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 10 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Troy Ray on December 20, 2022, before the United States Tax Court at its session in Los Angeles, CA, 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. _______________________________________________ Susan Patterson, CDLT-174 12/28/22 Transcriber Date _______________________________________________ Lori Rahtes, CDLT-108 12/28/22 Proofreader Date 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