TAX COURT OPINION

Case: Pamela Roe Davis
Docket Number: 2257-13
Judge: Halpern
Opinion Type: bench
Filed: 03/24/2014
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 RS PAMELA ROE DAVIS, Petitioner(s), v. ) ) ) ) ) Docket No. 2257-13. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORD ER 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 James S. Halpern at Los Angeles, California, 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, a decision will be entered for respondent. (Signed) James S. Halpern Judge Dated: Washington, D.C. March 24, 2014 SERVED Mar 25 2014 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Capital Reporting Company 3 Bench Opinion by Judge James S. Halpern February 4, 2014 Pamela Roe Davis v. Commissioner Docket No. 2257-13 THE CLERK: Docket number 2257-13, Pamela Roe THE COURT: I'm going to do a bench opinion in Davis. this case. 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 authority granted by Section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended. At the time she filed the Petition, Petitioner resided in California. Respondent has determined a deficiency of $6,513 in Petitioner's federal income tax for 2010, and an 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 accuracy-related penalty of $2,170 under Section 6662(a). We must decide whether Respondent erred in increasing 3 Petitioner's 2010 gross income by $56,656 and in 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 determining the penalty on account of Petitioner's negligence or substantial understatement of income tax. During 2010 Petitioner was employed by C.F.C. Federal Credit Union in the accounting department and received wages of $56,656.04, as reflected on a Form W-2 wage and tax statement, 2010. Section 61(a)(1) includes in gross income "income from whatever source derived, including, but not limited to, compensation for services, including fees, commissions, fringe benefits, and similar items." Although not specifically mentioned, wages are included within that definition. Wilcox v. Commissioner, 848 F.2d, p 1007, p 1008, 9th Circuit 1988; Nix v. Commissioner, T.C. Memo. 2012-304. Petitioner's principal argument, that the term "wages" as used in Sections 3121(a) and 3401(a) for employment and withholding tax purposes, respectively, does not include the compensation received is both wrong and beside the point. Petitioner misreads the sections. Section 3121(a) states: "the term 'wages' means all remuneration for employment . . .; except that such term shall not include various payments)" Section 401(a) is similar. Section 3401(c) defines the term "employee" to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 include various officials. That definition is inclusive, not exclusive. See Section 7701(c). C.E.C.'s payments to Petitioner fall within both Sections 31 1(a)'s and 3401(a)'s general definition of the term "wages", i.e., all remuneration for services, and the C.F.C. payments are not within any of the specified exclusions. Moreover, it is of no moment that, based on Petitioner excluding the C.F.C. payments from her return, the IRS paid her a refund. The IRS trusted her to make an accurate return, which she did not. It is also of no moment that the IRS may not have challenged her return for 2011. The $56,656.04 of wages that Petitioner received in 2010 from C.F.C. constituted an item of gross income for 2010, which Petitioner improperly omitted from her 2010 return. Section 6662(a) imposes an accuracy-related penalty equal to 20% of any underpayment resulting from a substantial understatement of income tax or from negligence. Respondent has demonstrated that Petitioner's underpayment results from a substantial understatement of income tax. Section 6664(c) contains a reasonable cause exception to application of the penalty. The determination of whether a taxpayer acted 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 with reasonable cause and in good faith depends on the 25 pertinent facts and circumstances, including the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 taxpayer's efforts to assess his or her proper tax liability, the knowledge and experience of the taxpayer, and the taxpayer's reliance on the advice of a professional, Section 1.6664-4(b) (1) Income Tax Regs. The taxpayer bears the burden of proof with respect to the reasonable cause and good faith defense. Section 7491(c); Rule 142(a); Higbee v. Commissioner, 116 T.C. 438, p. 446, 2001. Petitioner has failed to demonstrate that she acted 9 with reasonable cause and in good faith in omitting the 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 amounts with respect to her income for 2010. We sustain Respondent's determination of an accuracy-related penalty for 2010. In pertinent part, Section 6673(a)(1) provides a penalty of up to $25,000 if the taxpayer has instituted or maintained proceedings before the Tax Court primarily for delay or the taxpayer's position in the proceeding is frivolous or groundless. "The purpose of Section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate." Takaba v. Commissioner, 119 T.C. 285, p. 295, 2002. A taxpayer's position is frivolous if it is contrary to established law and unsupported by a reasoned, colorable argument for change in the law. E.g., Nis Family Trust v. Commissioner, 115 T.C. 523, p. 544, 2000. Petitioner's principal argument in this case 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 that the wages she received from C.F.C. are not subject to income tax is frivolous. See, ostman v. United States, 872 F.2d 429, 9th Cir., 1989, citing Wilcox v. Commissioner, 848 F. 2d, 1008 to 1009 for the proposition: "the contention that wages are not income is frivolous"; United States v. M ler, 778 F. 2d 539, 540 to 541, 9th Cir., 198 , e contention that gross income does not include wages is absurd 9 Nix v. Commissioner, T.C. Memo. 2012-304. We shall impose on Petitioner a Section 6673(a)(1) penalty of $2, 500. That concludes the Court's oral findings of fact and opinion in this case. Decision will be entered for Respondent. (Whereupon, at 10:10 a.m., the above- entitled matter was concluded.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 866.488.DEPO www.CapitalReportingCompany.com