TAX COURT OPINION

Case: Patricia Louise Hyde
Docket Number: 25406-08
Judge: Marvel
Opinion Type: memo
Filed: 06/14/2011
Pages: 17

.I T.C. Mémo. 2011-131 UNITED STATES TAX COURT PAI'RICIA LOUISE HYDE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent D cket No. 25406-08. Filed Uune 14, 2011 P tricia Louise Hyde, pro se. Dessa J. Bakar-Inman; fo res oNdent. MEMO RANDUM FINDINGS OF FACT AND OPINION M RVEL, Judge: Respondent determined a Federal income tax defici ncy of $6, 941 and a section 66621 accuracy-related penalty of $1,Š88 with respect to petitioner's 2005 takable year and 11 section references are to the Internal Revenue Code in effect for the year at issue, and all Rule references are to the' Tax CoÜrt Rules oÏ Practice ard Procedure. SERV£0 JUN 1 4 2011 - 2 - reflected those determinatioi s in a notice of deficiency dated Júly 21, 2008. Petitioner t mely petitioned this Court to contes t respondent ' s determir at ions . Thesissues for decision are as follows: (1 Whether petitione eceived nonemployee compensation of $29, 791 that she did not report on her 2005 income tax return; and (2), whether þetitioner is liable for the section 6662 penalty, for 2005 . In her þetitión, petitioner alleged that she rescinded her 2005 return before respondent mÁiled the notice of deficiency to her. She also raised a plethora of other issues that we will not addresà in this, opinion becaüse they are frivolous . See Williams v. Commissioner, 114 T.C. 136, 138-139 (2000) (quoting Crain v. Commissioner, 737 F.2d 1417, 1417 ,(5th Cir. 1984)) . FINDINGS OF FACT A few of the relevant facts have been stipulated. We incorporate the stipulation of facts into sour findings by this reference. When the petitio was filed, petitioner resided in Arkans as . The notice of deficien y adjusted Schedule A, Òeductions/ and the Lifetime Learning Credit, employment tax on the nonemployee compensation,' and allowed-a ieductionsfor oneshalf of These are either coniþutat ional"adjustmËnes or matters 'that"were not cháilengåd by petitioner and tl u need not be decided' herein. Itemized imposed self- thE self-employment tax. - 3 - etitioner t imely filed a Form 1040,. U.S. FIndividual Income Tax R turn, 'f or 3 0 0 5 . On tha re turn she report'ed :wages of a I $38, 127, taxable linterest of $25, ordinary dividends of $1, 768, a taxab e refund o $738, and a $3,000 capitaleloss. Petitionër did nct report arty self-employment income. y -CP2000 Notice dated June 18, 2007, respondent notified petit ionér that as he edid -not rinc lude -onsher 200 5 re turn $29 , 791 of nonemúloyee compensation repoi-ted -by a third-partyapayor,: Ally Apparel Resources sL . L . C . (Ally Appare1). , on a Form 510 9 9 -MISC, Mistellaneous EIncome. In thelCP2000 Notice, respondent proposed changes to petitioner' s 2005 return that, included increasing petitiorier' s inccme by $29, 791, reducing her cSchédule A deductioris and a Difetime Learning Credit to ~reflect the additionaallincome imposing self-employment tax on thé additional ~inconie, -and allowing a deduction for òne-half of ithe self- employ tent tax. The notice notified petitioner that the e resulting tax sincrease -was $9 433 and proposed the imposition of a penalty under ection 6662 ( ) : Petitioner responded to he CP2000 Notice dated June 18, 2007, 9through a nai-ling that reåpondent received on July. 20, 20 07 . In athat ma iling petitioner stated Cthate she -did not -agree with some of the chancjes, and she included a Schedule. C,s Profit or Loss From Business, 'for 2005Aand other documents exýlaining her disagreement . On the Schédule EC petitioner -reported gi-oss J. receipts of $29, 791,. expenses of $8, 394 (including $221 for the business use of her home), and a net profit of $21,397. Petitionet calculated that she owed additional tax for 2005 of $6,179, which included self-èmployment tax of $3,023, and she enclosed a check for $6,,179 By .CP2000 Notice dated November 13, 2007, respondent notified petitioner that he agreed with her position The November ,13, - 2007, ,notice reflected a revised 2005 tax increase e of $6, 941, a section 6662 (a) penalty of $1, 388 , and interest of $961, for a total proposed liability, after application of the earlier $6;179 payment, of "$3,111. Petitioner responded to the - November 13, 2007, anotice in a mailing that respondent "received on December 13, 2007. In the.t mailing petitioner stated that she had not had time "to properlý review all - records and documents" and that ashe did .not* know whèther she agreed or disagreed with the tax liability reflected .n the notice.. However, she enclosed a check for $3,111, to avoid additional penalties and interest. She stated that "Once a review is completed we will file a proper amended retui-n." In a letter dated Janua y 25, 2008, respondent responded to petitioner' s mailing. Respondent stated in the January 25, 2008, letter; in pertinent part, a follows: e You .do not need to file an amended return. If you will send us the correct Schedule iSE, - we will make all necessary changes for you and send a corrected notice to you. infŠ>rmation on Schedule C and * * * I 5 - Tàe need your signature on the "Consent at the end of this letter to complete our action on to Tax sIncrease" our tax account . Please sign the consent and send it to us . * * * f you don't agree with our proposed changes, please rite to us and tell us why. * * * On February 19, £008, petitioner·sent a response thatlasked respor dent to prc.vide the law that shows, petitioner is liable for any tax and an eyplanation of how the, tax -is to be sl-awfully calculated. Pespondent sent another CP2000 Notice to petitioner. The - o notice was dated Aprila4, 2.008 and showed a balance due of zero. 9 In a mailing sent on 3Máy 14/2 2008, petitioner. notified resporident that ehe was rescinding her 2005 return and was deman ing a refur d of $9, 625. Additional correspondence between petitioner and erespondent afollowed. On July 21 2008, respondent mailedsto petiticner a -notice öf sdeficiency for 2005 iirtwhich resporident detern ined that petitioner had fairleds to report - nonemployee compensation ,of $29,'791,e that petitioner was entitled to $8, 394 of businesseexpense deductions, and (that petitioner was liable for a deficiency of $6 941 and a section 6662(a) penalty of $1,388. 3 'he $9, 625 -..ax refund claimed presumably included the payments of $67179 and $3,111 and the tax of $330 reported on petitioner's oricinal 2005 return., There is a $5 difference that the record does fot' explain. - 6 - Petitiorier timely petit ned th .s Court to contest respondent's determination. A tîrial waå heldrWe ordered posttfial briefing and both parties submittied briefs in accordance with our order. Thereafter, by order dated March 430, 2011, we directed the parties to submit" supplemental* briefs addressing swhether this:.Court has -jurisdiction over thist case because, before the notice of defioiency was niailed, petitiioner had sent remittances sufficient to fully pay the $6 941 e deficiendy.détermined'thereïri. In -response to the order, botli parties filed- rsupplemental briëfs. Irr hisasuypliemental brief, respondent acknowledged that petitioner remitted $6,È9 and $3,-ll1/before* he mailed to petitioner the notice of deficiency dated July 21", -2008. Respohdent- contends, ah'owever thati,i while he posted the remittances to -petitioner/ s 20 0 5 Tinconie tax accdunt , he -did not, assess these amount s. Respondent requests tihe following finding:" The ,petistiorier's first iemittance'-of $6,179-did not fully pay the deficiehd respondent proposed for taxable year 2005, of $3,111. was a deposit(under I.R.C. payment ofstax, and t he efore the 3Court ,has E jurisdiction in this case. the etitioner'sasecond remittance § 6603 and not a In petitioner's suppleméntal brief, she agrees that she made the remittances in 2007 before respondent mailed the notice of deficiency dated July 21 20 8, she objects to the above-quoted requestEd finding of a t a d òitdig Co missioner v. Lundy, 516 U.Ê. 235 ,(1996):, she contend that we have jurisdiction under section 6512 (b) ( ) to determiè1e and refund the overpayment she contends-she made Petitione does not dispute' respondent ' s requested findin s of fact that respondent didenot .treat the remittances as p yments of ta and that respondent±did not 'assess the anounts of the remittances as deficiencies. We so find. I. Durisdictior OPINION The Tax Court is a court of limitede jurisdiction; and it may exercise its jurisdiction onlý to the extent authorized by statute,. Sec. 7442; Commissioner v. Gooch Milling & Elevator - Co., 320 U.S. 418, 420 (1943) A This Court is authorized to redetermine the amount of a déficiency for a taxable period as to which the Commissioner issued a notice of .deficiency and the e tax];íayer timely petitiòned th Court .for review. See secs. .6212, 6213, and 6214. This Codrt also has jurisdiction'to determine the an ount of an overpayment a taxpayer made for a year that is properly before tihe Court õn petitionato redetermine a deficiency; * Sec. 6512(b) (1) . If the Court determines that there is an overpaymente and further idet'ermined the amount of the. overpayment that is refundablètin accordance withosection 6512 (b) (3 ) , the overpayment lamount thús ,determined -"shall, when the decision of he Tax Court has become final, be credited or re funded to the axpayers" Se c . 6 512 (b) (1) . - 8 - Section 6211-(a). defines dan income tax deficiency as the amount by which the tax imposed under the -income tax provisions of the Code exceeds the excees of -- # (1) them sum of upon * (A) * [her] the amount shown as the tax by the taxpayer * return * * * plus (B) the amounts previously assessed (or collected without assessment) as a deficiency, over-- (2) the :amount of rebatès * * * made. In the notice of deficiency dated July 21, 2008,« respondent determined that petitioner w s liable for a $6, 941 deficiency and a section 6662 (a) e penalty of $1, 388 . However, petitioner mailed to respondent remittances of $6,,179 and $3,111 in 2007, which respondent received and posted to petitioner'es 2005 account -but did not treat as payments or assess as deficiencies before the notice of defici'ency was mailed to petitioner. Oui -jurisdiction to redetermine a deficiency depends upon the issuance' of a valid notice of deficiency and a timely filed petition., Monge v. Commissioner, 93 T . C. 22, 27 - (198 9) . Ordinarily, we will not look behind the anotice of deficiency to examine -the circumstances su rounding the -determination. Sees Petzoldt iv. Commissioner, 92 T.C. 661, 687-688 (1989) . Instead, we conduct a- proceeding de novo and redetermine a taxpayer' s tax liability on the basis of the evidence presented during the deficiency proceeding, not oh whatever record was developed at +- 9 - the administrati ë level; befo e the notice-of deficiency was issued. See Gre nberg'saExpress, Incry. Commissioner, 62 TI.C. 324, 327-328 (1974) . "It ,is not the existence of atdeficiency but the Commissioner's determination of a deficiericy that provides a predicate for Tax Court jurisdiction." Hannan v. :- a Commissioner, 52: T.C.; 787, 791 (1969) . Respondent "treated petitioner' s remittances as deposits sand not* payments: R spondent didinot assess additionaletax equal to the amounts 'of the remittances as a deficiency before issuing the notice off deficiency., ' Petitíðner does not dispute these facts. Respondent determined a defia ency of $6, 941a for 2005 and we have jur-isdiction. - II. Burden of- Proof and Burden of Production The Commiss:ioner's determinations in a notice of deficiency are presumed:cortect,mand the taxpayer ordinarily bears the burden of provin that the Cornmissioner' s determinations are ein error. See Rule 5142 (a) ; Welclš v. Helvering, 290 U.-S e 111, 115e (1933) . If , 'however, a taxpayer produces credible evidence with- respect ,to any factual issue ½elevant sto -ascertaining the taxp'ayer's tax 1-lability the burden of proof ion any such issue shifts to-the Conmissioner, bÛt only if the "taxpayer has complied with the requiren ents of sedtion 34 91 (a) (2)a Sec : 974 93:(a) (1) and (2) . I 0 - Petitioner edoesenot/con end that -section 7491(a) applies, nor hássshe establiished,t-hat ther requirements of esection 74914(a) (2) have beensmet . Consequently, petitióner bears the burden of groof as to any disputed- factual issue. See Rule 142 (a) Under section 6201(d) f a taxpayer asseits a reasonable dispute with respect to an i em of income reported on an information return fillediby a third pai-ty and athes taxpayer meets certain other requirements, he -Commissioner abears the burden lof producing reasonablegand pro ative einformation; in addition to a tlie einformation return, .concèrning the deficiency attributable to the income item. At trial petitioner disputed that she received any income from AllyaApparel the entity that iss ed the Form 1099-MISC reborting the rincoàe at» issue; »Petitioner admitted, however',5 that-shè,received $29, 791, the amount shown on the Form 1099-MISCs, during, 2005 from an entity she identified at trial as Texport . In addition; petitioner submitted a Schedule C. for 2005 toerespondent in tesponsesto the CP2000 Notice -dated June 18, 2007, irewhich she:admitted eceiving the funds Although the record does not clarify, why Ally Appatel ;issued the Form 1099- MISC .noi- edisclose the -relationshipeof AÍÍy Apparel ½o Texport the unclarified corporate relationship does rnot change the fact, thàt petitioner has admitted(receiving $29, 791 of nonemployee e income, which she was obliga ed .to report on her 2005 return but - 11 - did not . We conc lude thatwpet-itioner' s eattempt to dispute the accuracy of thelorm 1099-MISCrunder these-circumstances ist not reasor able and that-the burde of production with respect to the cincome does not shift to resp ndent under sedtion16201-(d) . III. Tjnreported Nonemployee C >mpensation a i Section 61 defines gross income as ."allsincome from whatever source derived" and includes compensation paid for ¯services, whether furnishec -by s the taxpayer as an employee or as a self - emplo ed person cr independen contractor. See sec. x61(a) . etitioner-admitted that she provided services to Texport durinc 2005 for which she was paid $29,j791. Because thiso ~ comperisationymust be includéd ina petitioner's income for 2005 e under isection 61-, wwe :sustain respondent' s determination. IV. Éetitioner' s Attempt To Rescind Return etitioner' a position that she ris not liable for any Federal income tax for 2C05 and that dhe 'is entitledato a refund focused- on hez misguided attempt-in22Ò08' to avoid liability for NFederal income tax by rescinding her 2005 réturn. Petitioner never fully explained her pos ition but appears to believe that rescinding her 2005 2deturn thereby imposes on:respondent the obligation to prove that she is liable for tax. either the Intërnal Rev nue Code rior the regulations promulgated thereunder, which are the sources of a taxpayer's 1 - 12 - obligation, to file an annual income tax "return,' contain any provision-permitting a taxpayer to'rescind-a,filed income tax Teturn. Moreover, petitione failed to prove that she overpaid her 2005 tax liability and that she was entitled to a .refunda We reject petitioner's argument as meritless. V. Section 6662 Penalty Section .6662 (a) and . (b) authorizes the imposition "of ar20 - percentspena-1ty on -the portiön of, an underpayment that is attributable, among other .things-,- to a -substantial understatement of income- tax or to negligence or disregárd of rules or - regulations. Respondent alleges that petitioner is liable for the -section 6662a penalty .because the únderpayment was attributable "to either, a sub tantial understatement of income tax or to negligence. 4 a A substantial understatement of income tax exists if the amount of .the understatement exceeds the greater of -10 percent of the tax required to be shown on the return-,. or $5,*000.• Sec. 6662 (d) ,(1) (A) .7 iTheaterm "understatement", means -the excess off the amount required to be shown on the return for -the taxable year over the samounts oi tax impos d that is shown on the return, reduced by any rebate. Sec. 6662(d) (2) (A) .u.The.amount of the - understatement is reduced by that portion of . the understatement ; *See, e.g., secs. 6012-6014; sec. 1.6012-1, Income Tax Regs.; sec. 301.6012-1, Proc d. & Admin. Regs. -413- - that s aattributs.ble ató (1) the taistrdatment of aany a item ifs M. the re isnör awas wubs tant ial authority for suchotreatment, of (2)' - any item if" the relevant fact a fecting-the item'sitaxatreatment are adequately d-i sclosed sin tñeireturn or in ái statement sattached to th return -anc there is a reasonable básis for the etaxpayer' s tax treatment1of the item? Secta6662 (d).(2)e(B) he term "ne gligence" as usednin ,sectiòn 6662 refers to any failure on theapaitsof ,the ta payer toañake aureasonable attempt to co ply with the prowiéions of the InternaldeienuérCode. Sec. 6662 ( ) . Theftenñ disiegard includes lány?cáréless, reckless, or intentional di sregard. 2;_d. A túpayer rLaß avoid alia > ] ity forithe sectíóne66625penalty impos e d i eciuse a f E the itaxpay ' s neg icjent e - or "subs tant ial unders a emente of - income tax af athe ataxyayer idémonstrates that the-ta payershadoreaáonable causeafor the underpayment and that the taxpayež actedlin-goodefa..th witherespect to the unde ayment Se c f6664 (c )u( J Reasonâble a cause land good f aith are de erminedeona-dase by e se basis, taking into accounts all pertinent facts and circumsta ces. Sece 1.6$64-41(b) (1) , Indome Tax R gs The amtst imyöi-tant factör infdetèrmining reasonable cause and gòod faith fš5the exten of tihe táxpayer's- effort to assess his orthei:tpropeia tax iábititymId A taxpaye n a? aestablish reasonable cause and góod faitha erithin the meanir gA of section 6664 (c )4 if thettaxpayer demonstrates that he or ,she reasonably relied in good "faith on the informedeadvice -of an in ependent professiona]: advisež as to theeproper tax treatment of an item. »Id. Thé taxpayer must shów that: (1) The adviser was a competent andaqualified professional who hadysuffitcient expertise to justify thee taxpayer's reliance on him, (2) the taxpayer pro ded all necessary, and accurate information to "the adviser, and (3) the ,taxpayersactually élied in good faitheon the adviser s judgment sin deciding on, the proper tax treatment÷of the item See Neonatology Associates, P.A. v: Commissioner,al15 T.C..43 9 (2000)%affd 299 F.t3d.221 (3d"Cir. 2002) . Under sect ion 74 91 (c ) , Ähe - Commiss ioner has the initial burden of"production with respect to any penalty,,addition to tax, "or additiona:1 amount andsmust introduce evidencesthat it is appropriate to impose the sectiona6662 penalty-on theitaxpayerato satisfy that burden oftproduéÊion. »Once-the Commissioner has satisfied his initial burden of production,sthe taxpayer must then come-forward with evidence sufficient to persuade us thate the-Commissioner's determination isaincorrect. Higbee v. Commissioner, -116 TT. C. 438 446-449 (2001) Thes,taxpayer béars the burden of proving that he or she is snot liables for the section 6662 penalty. The Còmmissioner need .not produce evidence regarding whetlier a taxpayer is entitled to reliefefrom the penalt-y unders section 6664 (c) Thedaxpayer muste raise that 5 - issue anc1 carry the burden of p oof with respect to it. Id. -at i 446. Respondent atisfiedthis initial burden of: production under section :7491(c) introducïnc evidence that petitioner received nonemployee comp nsation of $ 9, 791 but failed to report that' N income on her 20 5 return. Pétitioner thens had the obligation to show2that the ase tion 6662 penalty did anot apply. Petitioner made no such showing . & -Petitioner testified thai she sperformed services a for which she was paid $29,791, and she does not disputé that she failedato include that inc me on her 320 5 treturn.; EPetitioner argued that she did not know Ally Apparel and see ned to contend that, abecause she did notareceive tihe .money from Ally Apparel, she could i-gnore the Form 1099-MISC Ally Apparel issued even though she knew that she had keceived the "income Petitioner älso contended that she did not 2eceive the. Éorm ~1099 MISC (or 'at least that she did not receive a-Form 1099-MISC that covered the unreported compensat-ion) and -thati, there orey she did not have to report the nonem loyee conip nsatiori she receivea. e ido not- f nd credible ány testimony that suggests - petitioner did n t Zec^eive th Form' T099-MISC Tlïe "record , , suppörte a findi g that 'petit oner received the *Form 1'099-MISC but chose to ign re it because the name of the issuer did snot match the name of the company for which she worked, and we so - 16 - . find. 'Regardlessa of whether petitioner "received the Form 1099± MISC, however, petitioner deliberately failed to include income she knew sheehad received on 1 er, 2005 return. ,That efailure was neg gent at best and justifies the imposition of the section 662 penalty e a We turn to the, issue of reasonable cause and good faith unders section 6664 (c ) . At r ohe point during -the trial, petitioner testified that she relied on her return preparer for -th'e position that the -nonemployee rcompensation did not have,to be, reported on her 2005 return: When presséd -by the Court,, however,. petitioner claimeddthats she could inot erecall swhether she toldt the spreparer she had aatually received the income or whether. she simplystold him that she :did not get a Form 1099-MISC with respect ;to ,the income . Sur Petitioner'setestimony wàs insufficient to satisfy her bürden sof proving that she reasonably -relied onsprofessionál advice with respect to the unreported nonemployee compensation income ashe,received int2005. - Petitioner offered-no other testimony to prove that she had-reasonable .cause for her -failure to report the income, and,she certainly did not sprove that she acted -intgood faith. ,, Consequently, ewe sustain respondent' s determination that petitioner isdiable fcir thessection 6662 VI. Conclusion 17 - Tse have cone idered all o the arguments raised by either party, and to the extent not iscussed, we find them to be irrelevant or withdut merit. To reflect the foregoing Decision will be entered f or respondent . 1 1