TAX COURT OPINION

Case: Bruce H. Murray
Docket Number: 22426-15S
Judge: Guy
Opinion Type: bench
Filed: 11/17/2016
Pages: 13

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 BRUCE H. MURRAY, Petitioner, v. ) ) ) ) Docket No. 22426-15S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER 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 abovecaptioned case before Special Trial Judge Daniel A. Guy, Jr., at Boston, Massachusetts, on October 18, 2016, 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, an appropriate Order and Decision will be entered. (Signed) Daniel A. Guy, Jr. Special Trial Judge Dated: Washington, D.C. November 17, 2016 SERVED Nov 17 2016 Capital Reporting Company 3 1 Bench Opinion by Judge Daniel A. Guy, Jr. 2 October 18, 2016 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Bruce H. Murray v. Commissioner Docket No. 22426-15S THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents this 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. Hereinafter in this bench opinion, section references are to the Internal Revenue Code of 1986, as amended, in effect for the taxable years 2008 through 2013, and the Rule references are.to the Tax 19 Court Rules of Practice and Procedure. 20 This case was called for trial in Boston, 21 Massachusetts, on October 17, 2016. No appearance 22 23 24 25 was entered by or on behalf of Petitio at trial. Nina P. Ching entered an appearance for Respondent and filed a Motion to Dismiss for Failure to Properly Prosecute. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 The record reflects - or Petitioner is deemed to have stipulated to the following facts. Petitioner last filed a Federal income tax return for the taxable year 1996. In 1998, Respondent examined Petitioner's_ tax returns for the taxable years 1994 to 1996. The examination resulted in the assessment of tax deficiencies and additions to tax for those years. Petitioner received taxable interest income of $510 in the taxable year 2008. Beginning in March 2008 through 2013, Petitioner was an employee of 12 Daniels Equipment Company (Daniels). On or about 13 March 26, 2008, Petitioner submitted to Daniels a 14 Form W-4, Employee's Withholding Allowance 15 Certificate, stating that he was single and that he 16 was exempt from Federal income tax withholding. 17 Petitioner submitted similar Forms W-4 to Daniels on 18 19 20 21 22 23 24 25 or about January 10, 2012, and January 22, 2013. Daniels issued Forms W-2, Wage and Tax Statement, to Petitioner for the taxable years 2008, 2009, 2010, 2011, 2012, and 2013, reporting that he had been paid wages in those years for $43,364.98, $61,582.25, $59,751.94, $61,026.57, $61,717.82, and $62,195.66, respectively. Daniels did.not withhold any Federal income tax from Petitioner's.wages in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 accordance with the Forms W-4 that Petitioner had submitted to the firm. Petitioner did not remit any estimated Federal income tax payments to the Internal Revenue Service (IRS) or file Federal income tax returns for the taxable years 2008 through 2013. On January 16, 2015, in.accordance with the provisions of section 6020(b), the IRS prepared substitutes for returns for the years in issue. The record includes certified transcripts of Petitioner's account (Forms 4340, Certificate of Assessments, Payments, and Other Specified Matters), IRC Section 6020(b) Certifications (subscribed), with Forms 4549-A, Income Tax Examination Changes, and an examination report explaining the various adjustments contained in the substitutes for returns. On June 11, 2015, Respondent sent to g4-du_A-ory 18 Petitioner a s-t¬rtute Notice of Deficiency determining 19 20 21 22 23 24 25 income tax deficiencies for the taxable years 2008, 2009, 2010, 2011, 2012, and 2013 of $5,075, $8,844, $8,388, $9,066, $9,024, and $8,973, respectively. Respondent also determined that Petitioner is liable for additions to tax under sections 6651(a)(2), 6651(f), and 6654 for ea_ch of the years in issue. Respondent now concedes, however, that Petitioner is 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 not liable for an addition to tax under section 6651 for the taxable year 2008. Petitioner filed a timely Petition for redetermination with the Court challenging the Notice of Deficiency. At the time the Petition was filed, 6 Petitioner resided in South Dakota. 7 .8 9 10 11 12 13 14 15 On August 8, 2016, Petitioner filed a frivolous Motion for Summary Judgment. The Court summarily denied Petitioner's motion on August 10, 2016. On or about August 18, 2016, Respondent sent to Petitioner a proposed Stipulation of Facts for trial. See Rule 91(a). When Petitioner failed to respond to the proposed stipulation, Respondent filed a Motion for 16 Order to Show Cause h y roposed Fects end 6;idence 17 hhould ot be ccepted as stablished. The Court 18 19 20 21 22 granted Respondent's motion and directed Petitioner to respond by September 26, 2016. When Petitioner again failed to respond, the Court made its order to show cause absolute and the matters set.forth in Respondent's proposed 23 Stipulation of Facts were deemed established for 24 25 purposes of this case. The record includes the Forms W-2 that 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 7 1 Daniels issued to Petitioner. Petitioner did not allege in the Petition or at aeetheT stage of any o&her these proceedings that he did not receive the wages that 2 3 4 Daniel reported in the Forms W-2, nor did he deny 5 6 7 8 9 10 11 12 13 receiving interest income of $510 in 2008. He did not appear at trial to offer any evidence or argument in support of deductions, credits, or other adjustments to offset the tax liabilities that Respondent determined. Consequently, we will sustain the tax deficiencies that Respondent determined in the Notice of Deficiency. Respondent determined that Petitioner is liable for additions to tax under section 6651(a) (2) 14. for failure to timely pay his Federal income taxes 15 16 17 18 19 for the years in issue. Section 6651(a) (2) provides for an addition to tax of 0.5% per month up to 25% for failure to pay the amount shown on a return on or before the payment due date unless it is shown that the failure is due to reasonable cause and not due to 20 willful neglect. The section 6651(a)(2) addition to 21 22 23 tax applies even if the Taxpayer did not file a tax return as long as the Secretary prepared a valid substitute for return. Sec. 6651(a)(2), (g) (2); 24 Cabirac v. Commissioner, 120 T.C. 163, 170(2003). A 25 valid substitute. for return is one that purports to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 be a return, has been subscribed, and contains information sufficient to calculate the tax liability. See sec. 6020(b)(2); Cabirac v. Commissioner, 120 T.C. at 170-171. The Commissioner bears the burden of production and must introduce evidence showing that a return was filed for the years at issue. Wheeler v. Commissioner, 127 T.C. 200, 206-207(2006), aff'd, 521 F.3d 1289 (10th Cir. 2008); see sec 7491(c). Once the Commissioner meets his burden of production, the burden of proof is with the Taxpayer to show that the additions to tax that the Commissioner determined in the Notice of Deficiency should not be imposed. See Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). 15 Petitioner's burden o,f proof requires that he prove 16 17 that his failure to timely pay his Federal income tax was due to reasonable cause and was not due to 18 willful neglect. See sec. 6651(a)(2). 19 20 21 22 23 24 25 Petitioner did not file tax returns for the years in issue. The record shows, however, that Respondent prepared and subscribed substitutes for returns under section 6020(b) along with the information necessary to calculate Petitioner's tax liabilities. Respondent has therefore met his burden of production. Petitioner did not appear at trial 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 9 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 and has failed to offer any evidence or explanation that would suggest that his failure to pay the tax shown on the substitutes for returns was due to reasonable cause and not willful neglect. Inasmuch as the record shows that Petitioner deliberately failed to pay his taxes, we sustain Respondent's determinations for the years at issue with respect to additions to tax under section 6651(a)(2). Respondent also maintains that Petitioner is liable for additions to tax for failure to pay estimated tax under section 6654 for the taxable years 2009 through 2013. Section 6654 imposes an addition to tax on an individual who underpays his estimated tax. A Taxpayer has an obligation to pay estimated tax only if he has a "required annual payment". See Wheeler v. Commissioner, 127 T.C. at 212. As is relevant here, the required annual payment is equal to the lesser of (1) 90% of the tax shown on the individual's return for a particular taxable year, (or, if no return is filed, 90% of his tax for such year), or (2) if the individual filed a tax return for the immediately preceding taxable year, 100% of the tax shown on that return. Sec. 6654(d) (1) (B). The Commissioner bears the burden of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company productiond while the Taxpayer bears the burden of 6 10 proving that the Commissioner's determinations with respect to the additions to tax are invalid. Sec. 7491(c); Higbee v. Commissioner, 116 T.C. at 446-447. Respondent has met his burden of producing evidence that shows Petitioner had an annual required payment for each of the taxable years 2009 to 2013. The record reflects that Petitioner did not file tax returns for the years 2009 through 2013 and did not 1 2 3 4 5 6 7 8 9 10 make estimated tax payments for those years. 11 Petitioner did not appear at trial and he failed to 12 13 14 offer any evidence or explanation showing that an exception to section 6654 applies, and there is no evidence of an exculpatory factor that would excuse 15 Petitioner's failure to pay estimated tax. 16 17 18 19 20 21 22 23 24 25 Accordingly, we sustain Respondent's determination that Petitioner is liable for the addition to tax under section 6654 for the years 2009 through 2013. As discussed above, Petitioner did not file tax returns or pay income tax, including estimated tax, for the years in issue. Respondent determined that Petition's failure to file was fraudulent and that he is liable for an addition to tax under section 6651(f) for each of the years in issue. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 .Section 6651(f) provides an increase in the addition to tax imposed by subsection (a) (1) from a maximum of 25% to a maximum of 75% of the amount required to be shown as tax on an unfiled return if the Taxpayer's failure to file was fraudulent. It is worth noting here that substitutes for returns subscribed by the Commissioner under section 6020(b) do not qualify as returns for Section 6651(a) (1) and (f) purposes. Sec. 6651(g) (1). The Commissioner bears the. burden of proving fraud by clear and convincing evidence. See sec. 7454(a); Rule 142(b); Clayton v. Commissioner, 102 T.C. 632, 646 (1994). The civil fraud penalty is a sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the Taxpayer's fraud. 18 Helvering v. Mitchell, 303 U.S. 391, 401 (1938). 19 Because the record establishes that 20 Petitioner received substantial amounts of gross 21 22 23 24 25 income reported in the Forms W-2 that DanielSissued PG- to Petitioner for the taxable years in issue, Respondent has satisfied his initial burden of showing that Petitioner had an obligation to file tax returns showing a tax liability for each yeansin 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 issue. See secs. 1, 6011(a), 6012(a)(1) (A); Clayton v. Commissioner, 102 T.C. at 653. The existence of fraud is a question of fact to be determined from the entire record. See DiLeo v. Commissioner, 96 T.C. 858, 874 (1991). Because direct evidence of a Taxpayer's fraudulent intent is seldom available, fraud may be shown through circumstantial evidence, including 9 well-established "badge's of fraud" on which Courts 10 11 often rely. See Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989); Porter v. Commissioner, T.C. Memo, 12. 2015-122. The Taxpayer's entire course of conduct 13 14 15 16 may establish the requisite fraudulent intent. Stone v. Commissioner, 56 T.C. 213, 223-224 (1971). Some badges of a Taxpayer's fraudulent intent include: (1) understating income; (2) 17 maintaining inadequate records; (3) implausible or 18 19 20 21 22 23 24 25 inconsistent explanations of behavior; (4) concealment of income or assets; (5) failing to cooperate with tax authorities; (6) engaging in illegal activities; (7) an intent to mislead which may be inferred from a pattern of conduct; (8) lack of credibility of the Taxpayer's testimony; (9) filing false documents; (10) failing to file tax returns; and (11) dealing in cash. See, e.g., Porter 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 v. Commissioner, T.C. Memo. 2015-122. No one factor is dispositive but the presence of several of these factors may be circumstantial evidence suggesting fraud. See Niedringhaus v. Commissioner 99 T.C. 202, 211 (1992). The evidence in this case and the matters deemed to have been stipulated are sufficient to establish fraud. Petitioner's statements to IRS examiners centered primarily on his challenges to the IRS's enforcement authority. Although the IRS offered him a copy of a document titled "The Truth About Frivolous Tax Arguments," Petitioner refused it. The Petition that he filed with the Court contains nothing more than tax avoidance rhetoric and groundless claims. These actions are indicative of 16 Petitioner's- failure to cooperate with tax 17 18 authorities. He submitted false Forms W-4 to his employer indicating that he was exempt from tax 19 withholding, failed 'tö remit to the IRS estimated 20 21 22 23 24 25 Federal income tax payments, and failed to file Federal income tax returns for the years in issue. The additions to tax for fraud have frequently been imposed on Taxpayers like Petitioner "who were knowledgeable about their taxpaying responsibilities [and] consciously decided to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 unilaterally opt out of our system of taxation." 2 . Miller v. Commissioner, 94 T. C. 316, 335 (1990) ; see 3 Niedringhaus v. Commissioner, 99 T.C. at 212, 217- 4 5 6 7 8 9 10 11 12 13 219. Petitioner failed to appear at trial and has offered no plausible non-fraudulent explanation for his behavior. On this record, Respondent has clearly and convincingly established Petitioner's fraudulent intent under section 6651(f). Under the circumstances, the Court will sustain on the merits Respondent's determinat'ions set forth in the Notice of Deficiency (with Respondent's single concession noted above). Consequently, we 14 will deny Respondent's Motion to Dismiss for Failure to Properly Prosecute as moot. This concludes the Court's oral Findings of Fact and Opinion. (Whereupon, at 12:18 p.m., the above- entitled matter was concluded.) 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com