TAX COURT OPINION

Case: Ronald S. Adams
Docket Number: 18920-09
Judge: Morrison
Opinion Type: bench
Filed: 03/06/2012
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD S. ADAMS, ) Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) Docket No. 18920-09. ) ) ) ) NOTICE OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice of Procedure, there is transmitted herewith to petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Richard T. Morrison, at Tampa, Florida, on February 9, 2012, containing his 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) Richard T. Morrison Judge Dated: Washington, D.C. March 6, 2012 SERVED MAR - 8 2012 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 3 Bench opinion By Judge Richard T. Morrison Ronald S. Adams v. Commissioner Docket No. 18920-09 February 9, 2012 THE COURT: The Court has decided to render Oral Findings of Fact and Opinion in this case. The following represents the Court's Oral Findings of Fact and Opinion, which shall not be relied on 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, and Rule 152 of the Tax Court Rules of Practice and! Procedure. Unless otherwise indicated, all references to sections are to sections of the Internal Revenue Code in effect for the tax years in issue, and all references to Rules are to the Tax Court Rules of Practice and Procedure. By a statutory notice of deficiency dated May 11, 2009, the IRS determined a deficiency in the federal income tax of the petitioner, Mr. Ronald S. Adams, for the tax year 2004, an addition to tax under section 6651(a) (1), and an addition to tax under section 6651(a) (2). By a statutory notice of deficiency dated May 11, 2009, the IRS determined a deficiency in the federal income tax of Adams for the tax year 2005, an addition to tax under section 6651(a) (1), an addition to tax under section 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 4 6651(a) (2), and an addition to tax under section 6654 (a). The IRS filed an amendment to answer on March 21, 2011, asserting deficiencies and penalties of greater amounts than those determined in the notice of deficiency for both years, and also asserting an addition to tax under section 6654 (a) for the 2004 year. In its pretrial memorandum the IRS asserted that the correct adjustments were less than those asserted in the amendment to answer. The pretrial memorandum conceded that the proper amount of the adjustments for 2004 were (1) a deficiency of $277, 89 ,o° (2) an addition to tax under section 6651(a) (1) in the amount of $62,546.18, (3) an addition to tax under section 6651(a) (2) in the amount of $69,495.75, and (4) an addition to tax under section 6654(a) in the amount of $7,966.19. The pretrial memorandum conceded that the proper amount of the adjustments for 2005 were (1) a deficiency of $545, 576, (2) an addition to tax under section 6651(a) (1) in the amount of $122,754.60, (3) an addition to tax under section 6651(a) (2) in the amount of $136,39 and ( ) an addition to tax under section 6654(a) in the amount of $21,883.94. On October 14, 2011, the IRS filed a motion to show cause why proposed facts and evidence should 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 not be accepted as established. On October 24, 2011, the Court ordered that Adams show cause why the stipulation of facts attached to the IRS's motion should not be accepted as established. On December 28, 2011, the Court ordered that its order to show cause be made absolute. The effect of the December 28 order is that all of the numbered paragraphs of the stipulation of facts are considered true, and all the exhibits attached to the stipulation of facts are part of the record. Trial of this case was conducted on February 7, 2012, in Tampa, Florida. However, Adams did nót testify or present evidence. His sole contention at trial was his unsworn legal argument that he was not personally notified by the IRS that he had to file tax returns. The Court of Appeals for the Eleventh Circuit has already explained why this argument is invalid in the case of Perkins v. Commissioner, 262 Fed. App'x 119 (11th Cir. 2008); see also Fox v._ Commissioner, T.C. Memo. 1997-440. We do not elaborate here on the invalidity of Adams' argument. Findings of Fact At the time he filed his.petition, Adams resided in Florida. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 1'3 14 15 16 17 18 19 20 21 22 23 24 25 Adams did not file a tax return for 2003, the tax year before the years at issue. Adams did not file a tax return for the years at issue, 2004 and 2005. The IRS prepared substitutes for returns under section 6020(b) for 2004 and 2005. Paragraphs 5 through 14 of the stipulation establish that Adams earned various types and amounts of income in 2004 and 2005, including amounts of non- employee compensation. Adams has made no payments, including no estimated tax payments, with respect to his 2004 and 2005 tax liabilities. He has no pre-paid credits with respect to his 2004 and 2005 tax liabilities. 1. Deficiency Opinion The IRS asserted that Adams is liable for tax deficiencies of $277,893 -and $545,576 for the tax years 2004 and 2005 respectively, stemming from unreported income and computational adjustments. The stipulation established that Adams had various types of unreported income in specified amounts. Adams failed to contest that he received the unreported income in his petitìon or at trial. The IRS's assertion of deficiencies based upon this unreported income is sustained; 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 A portion of the deficiencies 1s attributable to the additional tax on self-employment income imposed by section 1401. Adams did not contest at trial that he received self-employment income in the amounts asserted by the IRS. Furthermore, the stipulation establishes that Adams received non- employee compensation from third-party payors in the amounts determined by the IRS. 2. Section 6651(a) (1) Pursuant to section 7491(c), the IRS bears the burden of production with respect to the addition to tax under section 6651(a) (1). Consequently, the IRS must produce.sufficient evidence to demonstrate that the addition to tax is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the IRS meets its burden of production, the taxpayer must produce sufficient evidence to persuade the Court that the IRS's determination is incorrect. Id. at 447. Section 6651(a) (1) provides for an addition . to tax where a taxpayer fails to file a return by the date prescribed. Adams did not file income tax returns for 2004 and 2005. We find that he did not have reasonable cause for failing to file the returns. Therefore, he is liable for the addition to tax under section 6651(a) (1) for tax years 2004 and 2005. 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 3. Section 6651(a) (2) Pursuant to section 7491(c), the IRS bears the burden of production with respect to the addition to tax under section 6651(a) (2). Consequently, the IRS must produce sufficient evidence to demonstrate that the addition to tax is appropriate. See Higbee v. Commissioner, 116 T.C. at 446. Once the IRS meets its burden of production, the taxpayer must produce sufficient evidence to persuade the Court that the IRS's determination is incorrect. Id. at 447. Section 6651(a) (2) imposes a penalty in instances where there is a failure to pay the amount of tax shown on a return, and it applies only when an amount of tax is shown on the return. Cabirac v. Commissioner, 120 TC. 163, 170 (2003). The IRS prepared substitutes for returns pursuant to section 6020 (b) for 2004 and 2005. Under section 6651(g) (2), a return prepared by the IRS under section 6020(b) is treated as the return filed by the taxpayer for purposes of determining an addition to tax under section 6651(a) (2). Cabirac v. Commissioner, 120 T.C. at 170. We find there was no reasonable cause for Adams' failure to pay the tax recorded on the substitutes for returns. We hold that Adams is liable for the addition to tax under section 6651(a) (2) for 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 9 tax years 2004 and 2005. 4. Section 6654 (a) Pursuant to section 7491(c), the IRS bears the burden of production with respect to the addition to tax under section 6654 (a). Consequently, the IRS must produce sufficient evidence to demonstrate that the addition to tax is appropriate. See Higbee v. Commissioner, 116 T.C. at 446. Once the IRS meets its burden of production, the taxpayer must produce sufficient evidence to persuade the Court that the IRS's determinatlon is incorrect. Id. at 447. Section 6654 (a) imposes an addition to tax on an individual taxpayer who underpays his or her estimated tax. A taxpayer has an obligation to pay estimated tax for a particular year if he or she has a "required annual payment" for that year. Sec. 6654 (d). Thus, the IRS's burden of production under section 7491(c) requires the IRS to produce, for each year for which the addition is asserted, evidence that the taxpayer had a required annual payment under section 6654 (d). See Wheeler v. Commissioner, 127 T.C. 200, 211 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008). A required annual payment is defined in section 6654 (d) (1) (B) as 90 percent of the tax for that year if no return is filed for that year and the 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 10 previous year. For 2004, the record establishes that Adams has a tax liability, that he did not file a return for the year, and that he did not file a return for the previous year, 2003. A substitute for return is not a return for purposes of section 6654. Duma v. Commissioner, T.C. Memo. 2009-304, slip op. at 18, n. 6. Therefore, the IRS's substitute for return for 2004 is not considered a return for these purposes. Adams made no payments of estimated tax for 2004, via withholding or otherwise. Therefore, the penalty for failure to pay estimated tax is sustained for 2004. For 2005, the record establishes that Adams has a tax liability, that he did not file a return, and that he did not file a return for the previous year, 2004. A substitute for return is not a return for purposes of.section 6654. See Duma v. Commissioner, T.C. Memo. 2009-304, slip op. at 18, n. 6. Therefore, the IRS's substitutes for return for 2004 and 2005 are not considered returns for these purposes. Adams made no payments of estimated tax for 2005, via withholding or otherwise. Therefore, the penalty for failure to pay estimated tax·is sustained for 2005. To give effect to the foregoing, decision 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 will be entered in favor of the respondent. This concludes the Court's Oral Findings of Fact and Opinion in this case . . 11 (cid:16)042 (Whereupon, at 4:49 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // // // // . Heritage Reporting Corporation (202) 628-4888