TAX COURT OPINION

Case: Bonnie B. Morneault
Docket Number: 15969-10S
Judge: Kroupa
Opinion Type: bench
Filed: 11/02/2011
Pages: 10

UNITED STATES TAX pOURT WASHINGTON, DC 2021 BONNIE B. MORNEAULT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) O R D E R Docket No. 15969-10S Pursuant to Rule 152(b), Tax Cour Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall petitioner and to respondent a copy of transcript of Diane L . Kroupa at Phoenix, Arizona, on October 19, 2011, containing her oral the proceedings of the agove case before Judge findings of fact and opinion. the pages of transmit the to In accordance with the oral findings of fact and opinion, decision will be entered for responde . (Signed) Diane L. Kroupa Judge Dated: Washington, D.C. November 2, 2011 SERVED NO/ - 8 2011 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 Diane L. roupa October 19, 2011 Morneault v. Commissioner Docket No. 15969-10S THE COURT: The Court ha 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. These oral findin s of fact and opinion shall not be relied upon as pre édent in any other case . This proceeding was heard as a small tax case pursuant to the provisions of section 7463 and Rules 170 through 175. This bench opinion is made pursuant to the authority granted by section 7459 (b) and Rule 152 . All section references are to the Internal Revenue Code as amended and in effect for 2008 and all Rule references are to the Tax Court Rules of P actice and Procedure. This is a deficlency casg primar11y involving the proper characterization of a p ent to petitioner. Petitioner appeared pro se and Llicia Elliott appeared on behalf of respondent. FINDINGS OF FACT Certain facts are stipulated. The stipulation of facts, with accompanying exhibit.s, is incorporated by this reference. The facts are so found. Petitioner resided in Arizona at the time she filed the petition. Petitioner was born in 1973. In 2008, petitioner . Heritage Reportin Corporation (202) 628 4888 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 was trying to gather enough. mone . to move her mother back to Massachusetts from Arizona. er boyfriend at the time, Brian Golie (Mr. Golie) , s the owner and president of Golden West Biolog als, Inc. (Golden West). Golden West and NOVA Bid ogics, Inc. (NOVA) both sold raw materials to medical de ice manufacturers. Golden West occasionally perforn d contract work for NOVA' s clients . On such occasions, NOVA would pay Golden West a commission for Mr. Golie work and Mr. Golie would receive wages from Golden est. In the fall of 2008, Mr olie was working on a project for NOVA and requested that petitioner help him with the work. He agreed to split his commission with petitioner. Petitioner worked th IVir. Golie from Mr. Golie's residence. Mr. Golie in ormed NOVA that his commission was to be split between Golden Wëst and petitioner. He submitted a reqüÁst to NOVA that a check be made payable to petitioner, c which document petitioner wrote her name address, and social security number. NOVA issued two checks to petitioner in the amounts of $5,000 and $7,500. 1 VA did not withhold for tax on these amounts and issued to petitioner a Form 1099-MISC showing $12,500 of norèmployee compensation and zero withholding. Petitioner claims that. she never worked for NOVA Heritage Reporting Corporation (202) 628r4888 1 2 3 4 5 6 7 8 9 lo 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and the $12,500 received from NCVA was a gift from Mr. Golie. Petitioner claims that Mr. Golie offered her the money to pay for her mother's move. Mr. Golie claims that he was trying to help petitioner earn money to pay for her mother's move, but he n er intended to give her a gift and he and petitioner bo knew that the payments were for services. Petitioner filed a Federal income tax return for 2008 but did not reflect the $1 ,500 received from NOVA as income. She concedes that she also did not report the following items of taxable income: (1) $22 of interest income from GFA Federal Credit Union, (2) $6 of interest income from First Credit Union, (3) $4,535 of unemployment compensation and ( ) a $4, 025 early distribution of retirement incone from GFA Federal Credit Union. She did report a $3, 890 early distribution of retirement income from Fidelit Investments. Respondent issued a deficiency notice to petitioner for taxable year 2008 on June 1, 2010. Respondent identified unreportgd income as already described. Respondent also assérted that petitioner is liable for self-employment tax on her payments from NOVA, a 10 percent additional tax on remature distributions from retirement accounts totali g $792 and a $1,129 accuracy-related penalty under ection 6662 (a) . As Heritage Reportir Corporation (202) 628 4888 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 previously mentioned, petitione conceded a number of items. At trial, petitioner primarily addressed the character of the $12,500 received from NOVA. She told the Court that it was a gift frcm Mr. Golie and that she never understood it to be compe sation for services. She admits that she received the am nts from NOVA yet asserts that she never worked f r NOVA and they should have asked for the money back. Petitioner's mother also testified, claiming that the $1G,500 was a gift to her rather than to petitioner. OPINION We are asked to decide f tur issues in this case. We must decide whether the $12, 00 that petitioner received from NOVA was a non-taxable gift and whether petitioner is liable for self-employment tax with respect to this amount. We also must cide whether petitioner is liable for a 10 percent additional tax on premature distributions from her retirememt accounts and whether she is liable for the accuracy r lated penalty. $12,500 Payment from NOVÄ We first consider whether petitioner should have included the $12,500 payment fp m NOVA in income. We note that the presumption of còrrectness attaches to the deficiency determination becauÅe respondent established Heritage Reporting|Corporation (202) 628 4888 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 7 substantive evidence that petiti ner received the income, and indeed petitioner admits tha she received the payments. See Weimerskirch v. C mmissioner, 596 F.2d 358, 361-362 (9th Cir. 1979) , re q 67 T. C. 672 (1977) , Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982) . Petitioner failed to inc ude the $12, 500 payment in income on her return even though NOVA issued her a Form 1099-MISC showing the payment as income. Respondent contends that this payment was dot a gift and petitioner should have included it in income. Petitioner claims this payment was a g i f t f rom he boyf r iend and no t payment for the services that s e helped him perform. Gross income is income from whatever source derived unless otherwise excluded. Sec. 61(a). Gross income includes compensation f ¼ services. Sec. 61(a) (1) . Gross income does no include the value of property acquired by gif t . Sec . 10 2 (a) . A gift must proceed fron a detached and disinterested generosity, motiv ted by affection, respect, admiration, charity, the like for income tax purposes. See Duberstein v. Commissioner, 363 U.S. 278, 285 (1960); Williams v. Commissioner, T.C. Memo. 2003-97. The transferor's intention is the most critical consideration for this inquiry. Duberstein v. Heritage Reporting Corporation (202) 628 4888 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 8 Commissioner, supra at 285. The transferor's characterization of the payment, however, is not determinative. Idm at 285-286. There must be an objective inquiry as to whether Éhe payment is really a gift. Id. There is no evidence that NOVA intended the payments to be a gift. Moreove , Mr. Golie tells the Court that he never intended th payments to petitioner to be a gift. He wanted to hel petitioner raise funds to move her mother, and did so y procuring a pald work opportunity for petitioner. Pe tioner flew to Mr. Golie's residence multiple times during the fall of 2008 and was able to help him with his work while she was there. She then received paymerts from NOVA with respect to which the work was completed. Despite petitioner's and Mr. Golie's romantic relatic ship, Mr. Golie's statement of intent and the objtátive facts surrounding the payments convince us that the $12,500 was for services and not resulting from detached and disinterested generosity. See Duberstein v. Commissioner, supra at 285. Petitioner's insistence that she received a gift is unavailì g, as we are not required to accept the self-serving tes ony of interested parties without persuasive evidence or corroboration. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Yang Heritage Reportin Corporation (202) 628 4888 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 9 v. Commissioner, T.C. Memo. 2000-263. Petitioner has failed to establish that the $12,500 payment was a gift. We thus sustain respondent' s determination that the payment to petitioner was includible in income. Self -Employment Tax We next consider whether petitioner is liable for self -employment tax on the $12, 500 paid by NOVA to petitioner. A tax is imposed on self-employment income, which consists of net earnings erived from a trade or business carried on by an indiv1dual. See sec. 1401(a); sec. 1.1401-1(a) and (c), Income Tax Regs. Since respondent has determined that the income received by petitioner meets these require nts, petitioner must show that this determination is inco rect in order to prevail. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a). As mentioned previously we hold that the $12, 500 received by petitioner was not a gift and instead constituted compensation. We oÊe that the payments were received by petitioner without reduction for social security or federal withholdinc taxes. Petitioner remains liable for such taxes a a self-employed individual. She failed to sup ort any position to the contrary. She merely asserted hat she didn't perform any services. Absent evidence to the contrary, we find that petitioner's compensation constituted earnings from Heritage Reporting Corporation (202) 628- 888 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 10 self-employment and, therefore, is subject to the tax imposed by section 1401. Section 72(t) Additional Tax We next determine whethe petitioner is liable for the 10 -percent early withdrawal addition under section 72 (t) . Respondent determined tl at petitioner is liable for a 10-percent additional tax on her $7, 915 distributions from her retireme t accounts in 2008. Petitioner does not dispute that she received these dis tributions . If. an individual taxpayer receives any amount from a qualified retirement plan, in luding a qualified retirement account, the taxpaye s tax is increased by 10 percent of the portion of the mount that is includable in gross income . Secs . 72 (t) (1) , 4974 (c) . There are various exceptions to this general rule, but there are no indications in the record that any of the exceptions applies, and petitioner raises no arguments with respect to this issue. We sustain respondent's determination on the basis of the record before s. See Cabirac v. Commissioner, 120 T.C. 163, 16 (2003) . Accuracy-Related Penalt We next address whethe petitioner is liable for the accuracy-related penalty un er section 6662. A penalty is imposed on any unde ayment of tax that is due Heritage Reportinc Corporation (202) 628 4888 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 11 to either negligence or disregard of rules or regulations or a substantial understatement of income tax. See sec. 6662 (a) , (b) (1) , and (2) . Re spcndent has shown the Court, and the record demonstrat s, that petitioner' s understatement of income tax for 2008 was substantial within the meaning of section 6662 (d) . Moreover, petitioner failed to present an documents or information to show that her substantial un2erstatement was due to reasonable cause and not willfu neglect. Petitioner only argues that she should not have to pay tax for what she thought was a gift. In vie of the foregoing, we sustain respondent's determinat ån that petitioner is liable for the accuracy-related penalty. To give effect to the foregoing, decision will be entered for respondent. THIS CONCLUDES THE COURT ' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE . (Whereupon, at 1:03 p.m. the bench opinion in the above-entitled matter was concl ed.) . // // // // // // Heritage Reportin Corporation (202) 628 4888