TAX COURT OPINION

Case: Luis Antonio Medina
Docket Number: 8585-16
Judge: Morrison
Opinion Type: bench
Filed: 01/31/2018
Pages: 9

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 LUIS ANTONIO MEDINA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 8585-16. ORDER OF SERVICE OF TRANSCRIPT 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 respondent a copy of the pages of the transcript of trial in the above case before Judge Richard T. Morrison, at Jacksonville, Florida, on December 13, 2017, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. January 31, 2018 SERVED Feb 01 2018 . 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Richard T. Morrison December 13, 2017 Luis Antonio Medina v. Commissioner of Internal Revenue Docket No. 0008585-16 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 on as precedent in any other case. 10 This bench opinion is made pursuant to the 11 authority granted by section 7459(b) of the Internal 12 Revenue Code of 1986, as amended, and Rule 152 of the Tax 13 Court Rules of Practice and Procedure. 14 15 In this bench opinion, all section numbers refer to the Internal Revenue Code of 1986, as amended and in 16 effect for 2013, the tax year in issue. All Rule numbers 17 18 19 20 21 22 23 24 25 refer to the Tax Court Rules of Practice and Procedure. For the 2013 tax year, the respondent, or the IRS determined a deficiency of $3,877. Findings of Fact Some of the facts are stipulated and they are so found. During 2013, the petitioner, Mr. Luis Medina, was employed by Tube Light, a corporation which sells supplies and equipment for screen printing. Tube Light (973)406-2250|operations@escribersmetlwww.escnbetsmet 4 hired Medina in April 2013 as a customer sales representative and paid him every two weeks. Medina had significant experience with the manufacturing side of the screen printing business, such as how to print shirts. In 2012 or 2013, Medina met Stanley Lewis, who operated a screen printing business out of his home in Deltona, Florida. Lewis was a skilled salesman, but had little experience with printing shirts. Sometime in 2013, Medina began helping Lewis with the printing process. In return, Lewis let Medina use his screen printing equipment for Medina's own use. At some point before October 2013, Medina used 1 2 3 4 5 6 7 8 9 10 11 12 13 Lewis's equipment to screen print shirts for the Special 14 Olympics of Florida. Around the same time, Medina named 15 his own printing business "The Print Stop". Medina was 16 paid $1,795 by Special Olympics Florida for the shirts. 17 Medina did not report this income on his Form 104 .S. 18 - Individual Income Tax Return". 19 During 2013, there were four bank accounts in 20 Medina's name. Three of the accounts were checking 21 accounts: account 3064, account 7705, and account 8018. 22 23 24 The fourth was a payment processing account. All four of the accounts were opened at SunTrust Bank. Account 3064 was opened sometime before 25 September 2010 and was used by Medina as his primary (973)406-2250|operations@escribersmet|vnw,,escribers.net 5 1 2 non-business checking account. The account was opened in the name of "Luis Antonio Medina". The bank recorded 3 Medina's home address as his residence in Sanford, 4 5 6 7 8 9 Florida. Account 3064 was closed in August 2013. Account 7705 was opened in August 2013 in the name of "Luis Antonio Medina". The account was opened using the same home address in Sanford, Florida. The signature card for the account bears Medina's signature. Account 8018 was opened sometime before 10 September 2013 in the name of "Luis Medina DBA The Print 11 Stop". This account received payment for the Special 12 Olympics Florida Shirts. 13 14 15 16 17 18 In August 2013, a payment processing account was opened in the name of the "Print_Stop" business. Medina is listed in the application as both the contact person for the business and the owner of the business. No other individual is mentioned. Between September 11, 201 and December 18, 19 2013, bank records indicate that the "Print Stop" payment 20 processing account received $13,390 in payments. The 21 22 23 payments received by the payment processing account were reported to the IRS on an information return -- Form 1099-K, "Merchant Card and Third Party Network 24 Transactions". The Form 1099-K identified Luis Medina as 25 the recipient of the $13,390 and the person responsible cribers (973)406-2250|operations@escribersmet|www.escnbersaet 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 for reporting it on his income tax return. Bank records also indicate that the $13,390 in payments received by the payment processing account.were transferred to account 7705. Medina did not report any of the $13,390 on his Form 1040. The IRS issued a notice of deficiency for the 2013 tax year, determining that Medina under-reported his income by $15,185 -- consisting of (1) the $13,390 of deposits into the payment processing account and (2) the $1,795 payment from Special Olympics Florida. With computational adjustments, these determinations resulted in a deficiency of $3,877. Before trial, Medina conceded that he was paid $1,795 by Special Olympics Florida and that he failed to report it on his Form 1040. Therefore, the only issue left for us to resolve is whether the $13,390 is includable in Medina's gross income. As noted before, the $13,390 of payments passed through both the payment 19 processing account and account 7705. Both accounts were 20 in Medina's name. We concentrate on Medina's control over 21 22 the payments through his control of account 7705. Medina resided in Florida when he filed his 23 petition. His petition was timely and we have 24 25 jurisdiction under section 6213(a). Opinion (973)406-2250|operations@escribersnet|www.escribersaet 7 Medina contends that the $13,390 of transfers to account 7705 should not be included in his gross income because (1) he had no control over the account and (2) the $13,390 were the proceeds from shirts that Lewis sold. We find that Medina had control over account 7705 and made withdrawals from account 7705. Medina therefore controlled the $13,390. While it appears that Lewis was the original source of the $13,390 in proceeds, and although the record is not clear as to Medina's business arrangement with Lewis, Medina has not proven that the $13,390 is not his income. I. Burden of Proof As a general rule, a taxpayer bears the burden 1 2 3 4 5 6 7 8 9 10 11 12 13 14 of proving, by a preponderance of the evidence, the IRS's 15 determinations in a notice of deficiency are in error. 16 Rule 142'(a). In cases where the deficiency is based on 17 18 unreported income, the IRS must come forward with evidence connecting the taxpayer with the income-producing activity 19 before the burden attaches. Blohm v. Commissioner, 994 F. 20 2d 1542, 1549 ·(11th Cir. 1993). The required evidentiary 21 22 23 24 25 showing in this regard is "minimal". Id. (quoting Carson v. United States, 560 F.2d 693, 697 (5th Cir. 1977). The IRS has shown a sufficient connection between Medina.and the income-producing activity. Medina admits that he printed and sold shirts during 2013, (973)406-2250loperationscescribersmet|www.escribersnet 8 1 2 3 4 5 6 7 8 9 including the $1,795 in shirts he sold to Special Olympics Florida. Medina had a business relationship with Lewis. 1 This relationship included doing work for Lewis and using his screen printing equipment for his own use. Medina also allowed Lewis to use the name "The Print Stop", which was the name for Medina's business. The relationship likely had other aspects as well. Finally, Medina does not assert that he meets the requirements of section 7491(a), which would shift the 10 burden of proof to the IRS. As a result, Medina bears the 11 12 13 14 burden of proving that the determination in the notice is faulty. II. Income from the Payment Processing Account We hold that the $13,390 is includable in 15 Medina's gross income. 16 17 Under section 61(a), gross income generally includes "income from whatever source derived" unless 18 specifically excluded by statute. The claim-of-right 19 doctrine informs the operation of section 61(a). Under 20 the claim-of-right doctrine, a taxpayer who receives an 21 22 23 amount, treats it as belonging to him, and is not restricted in the way he disposes of it, must include the amount in income. North American Oil Consolidated v. 24 Burnet, 286 U.S. 417, 424 (1932); Healy v. Commissioner, 25 345 U.S. 278, 282 (1953). S73)406-2250]operations@escribersmet|www.escnbersaet The evidence shows that Medina had access to and exerted control over account 7705 and the funds within the 9 account. In terms of deposits, bank records show that between August 23, 2013, and January 10, 2014, all of 1 2 3 4 5 6 Medina's bi-weekly paychecks from Tube Light were 7 8 9 deposited into account 7705 via direct deposit. Prior to opening account 7705, these bi-weekly paychecks were deposited into account 3064, which Medina admits was his 10 personal account. Medina also admits that Tube Light was 11 his only steady source of income during 2013, which 12 13 14 15 suggests that he could not have maintained his standard of living without access to his Tube Light paychecks. In terms of withdrawals, the expenditures made from account 7705 bear the characteristics of Medina's 16 personal expenses. Both account 3064 and account 7705 17 were used to make purchases at retail locations in 18 Sanford, including A -A-Lot, Wal-Mart and Walgreens. 19 Sanford is Medina's hometown. While Medina does not 20 21 remember any of the specific retail transactions recorded in the bank statements for account 7705, he does not 22 dispute that he likely made those purchases. Thus, we 23 24 25 conclude that Medina did in fact control 7705 and had access to the $13,390 amounts in question. There are possible avenues for Medina to dispute (973)406-2250loperationsgescribersmet|www.escnbersnet 10 1 2 3 4 5 6 7 8 9 that the $13,390 is taxable to him even though he had unfettered control of account 7705. Two possibilities are (1) he acted as a conduit for Lewis's screen printing business, receiving the $13,390 only as Lewis's agent (see Diamond v. Commissioner, 56 T.C. 530·, 541 (1971)), or (2) the $13,390 amounts were gifts from Lewis (see section 102(a)). However, Medina has failed to prove that either of these possibilities is the correct characterization. Although Medina testified that he helped Lewis with some 10 problems regarding his PayPal account, the evidence does 11 not show that he held money for Lewis while these problems 12 were being addressed. Moreover, Medina did not prove that 13 Lewis intended to make a monetary gift to him. 14 Significantly, Lewis and Medina were engaged in a business 15 16 17 18 relationship during the period the transfers were made. Therefore, we hold that the $13,390 in transfers into account 7705 in 2013 are includable in Medina's income. 19 III. Conclusion 20 A decision will be entered that there is a 21 deficiency of $3,877 for the 2013 tax year. 22 23 24 25 This concludes the bench opinion. (Whereupon, at 3:20 p.m., the above-entitled matter was concluded.) (973}406-2250|operations@escribersmet|v,ww.escribers.net