TAX COURT OPINION

Case: Jeffry Otto Woodard
Docket Number: 1739-11S
Judge: Goeke
Opinion Type: bench
Filed: 06/10/2013
Pages: 12

oeb UNITED STATES TAX COURT WASHINGTON, DC 20217 JEFFREY OTTO WOODARD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 1739-11S. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk ofthe Court shall transmit herewith to petitioner and to respondent a copy ofthe pages ofthe transcript ofthe trial in the above case before Judge Joseph Robert Goeke at Phoenix, Arizona, 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, a decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. June 10, 2013 SERVgo 'JUN 1 2 2013 Capital Reporting Company 3 1 Bench Opinion by Judge Joseph Robert Goeke 2 April 16, 2013 3 4 5 6 7 8 Jeffrey Otto Woodard v. Commissioner Docket No. 1739-11S 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 öf Fact and 9 Opinion shall not be relied upon as precedent in any 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 other case. This opinion is rendered pursuant to section 7459(b) of the Internal Revenue Code. The section references hereinafter are to the Internal Revenue Code. This case was heard pursuant to the provisions of section 7463, in effect when the petition was filed. Pursuant to section 7463(b) the decision to be entered is not reviewable by,any other court. The Court has jurisdiction over the present case under section 6213(a) because the Petitioner timely filed a petition after receipt of the notice of deficiency. Respondent issued a notice of deficiency to the Petitioner on October 20, 2010 determining 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 deficiencies in income tax for the years 2004 and 2005, and additions to tax under 6651(f) for both years. Respondent also asserted in the notice of deficiency that should it be determined that 5 Petitioner was not liable for the underpayment. of tax 6 7 8 9 10 11 12 due to fraud provided by section 6651(f) he accuracy-related penalty of section 6652(a) was asserted in the alternative. The amounts of the deficiencies for 2004 and 2005 are $6,171 and $8,195 respectively, and the additions to tax are $4,628.25 and $6,146.25. This case was tried in Phoenix, Arizona on 13 April 15, 2013 and testimony was heard from two 14 witnesses. In addition, the parties entered into a 15 stipulation of facts and stipulated various exhibits. 16 Finally, some additional exhibits were admitted at 17 18 19 20 the trial. At the time we filed the petition in this case, the Petitioner resided in the Republic of Panama. The parties have stipulated that he was a 21 United States citizen during the years in question 22 and for all periods relevant to this case, and the 23 Petitioner has a United States passport. 24 25 The Petitioner did not file Federal income tax returns for 2004 or 2005 and respondent prepared 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 substitutes for returns under the authority of section 6020(b) for both years. The parties have stipulated that Petitioner had taxable deposits in a bank account characterized with the name His Covenant 5 Ministries. In both the years, 2004 and 2005, the 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 parties stipulated that Petitioner caused to be transferred from an account captioned jeffotto.com into a bank account for His Covenant Ministries, hereinafter referred to as HCM, in the amount of $27,495 for 2004. This amount coincides with the amount of additional income asserted by the respondent in the notice of deficiency. Petitioner objects to this information being used in the notice of deficiency and being admitted at trial because he claims that the respondent's summons to obtain the bank records with underlying notice of deficiency was inappropriate. We will address this objection subsequently in this opinion. For 2005 the parties stipulated that funds were transferred in the amount of $34,865 from the jeffotto.com account into the HCM account. 23 Petitioner makes the same objection. At trial 24 Petitioner testified that these amounts that were 25 transferred were earned by him in his website 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 management business or through sales via his 2 3 4 jeffottom.com company, which were deposited in that account and transferred to the HCM account. He refers to the transfers as being for website 5 management fees. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Petitioner maintains that the HCM account was maintained for charitable purposes as HCM itself was designed to "do good". However, the record establishes that the amounts deposited into the HCM account were used to support the Petitioner and pay personal expenses or provide funds to Petitioner's relatives. Petitioner, while he maintained at trial that HCM was designed to "do good", failed to provide any evidence of actual charitable activities conducted by HCM and the records stipulated would not indicate that any of HCM's funds were actually used to pay for charitable endeavors. The Petitioner maintains that he is not subject to the Federal income tax. He centers this argument around an affidavit he submitted to the government in 1994 where he attempted to disavow his social security number. He also submitted at trial two subsequent documents submitted to the Internal Revenue Service in April of 1996 and another document submitted to the Internal Revenue Service in May of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 1996. In all of which he attempted to place the burden on the Internal Revenue Service to establish why he was required to file a 1040, as he maintained that he is not required to file a 1040 and that filing a Form 1040 was voluntary. Nowhere in the record of trial did 7 Petitioner attempt to argue that he had any 8 9 10 11 12 13 14 deductible expenses in 2004 or 2005. And respondent's examining revenue agent testified that after reading Petitioner's bank records, no deductible expenses were apparent. Regarding the information which was used by respondent to develop the underlying computations in the notice of deficiency, as previously stated, petitioned 15 maintains that respondent's use of the bank records 16 17 18 19 20 21 22 23 24 25 of jeffotto.com and HCM was inappropriate and that these records should not have been accessed by the government. Petitioner has failed to demonstrate that respondent's use of these records was a violation of the authority given to the respondent to summons information under section 7602 and, in particular, that respondent in any way failed to properly obtain the records pursuant to the specific authority to obtain third party records under section 7609(b). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 Petitioner admitted at trial that no enforcement 2 3 4 5 6 7 8 9 10 11 12 13 action was precipitated by his intervention concerning the summonses as would have been provided by section 7604. And he has offered no basis on which to establish that there was bad faith or any reason to challenge the summonses which produced the underlying bank records. And there is no basis on which the Court should exclude those records from the evidence of trial. In addition, part of the stipulations, and the testimony at trial established that the notice of deficiency was based upon the third-party bank r e c o r d s o f j e f f o t t o . com,a-ad-ee-e+e-t-he--end . T he 14 Petitioner does not deny that he received the funds 15 in question. Given these circumstances we think 16 Petitioner's objection to the underlying bank records 17 18 19 20 21 22 23 24 25 is specious and without merit. We first ±ae+4 of Petitioner's legal argument that the income in question is not taxable to him because he disavowed his social security number. He maintains that after 1994 he was not contacted by the Internal Revenue Service until the 2004 and 2005 years and that therefore the Internal Revenue Service accepted his position that he was not subject to Federal income tax. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 Petitioner's argument is frivolous and consistent with tax-protester type arguments which were addressed by the 5th CirCuit COurt Of Appeals in 4 Crain v. Commissioner, 737 F.2d 1417, (5* Circuit 5 6 7 1984). The Court of Appeals stated, "we foresee no need to refute these arguments with somber reasoning in copious citation of precedent". The Tax Court, as 8 well, has determined that it is not necessary to 9 specifically address frivolous taxpayer arguments, 10 11 12 13 14 and our Court has described the problems with these arguments in some detail in Wnuck v. Commissioner, 136 T.C. 498, 510-513. We found that addressing frivolous taxpayer protest arguments wastes the limited resources of the 15 Court, delays the assessment of tax, misdignifying 16 such arguments or suggesting that they have colorful 17 merit. And we've also found in that case that 18 19 20 21 22 23 24 25 taxpayer protest arguments tend to be unlimited, that they lack actual importance to the person making the argument, that they have been previously answered in the case law and that they are patently frivolous. Obviously the Petitioner maintains that his arguments are not frivolous in this case and that respondent accepted his arguments under 2004. We believe the fact that Petitioner wasn't audited 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 2004 simply is a eeneëèen of the fact t:Í9 th that he had no 10 income which was readily deciphered by the respondent 3 until that time. It was only after respondent 4 5 6 7 8 9 10 11 12 13 14 15 16 actually obtained bank records which demonstrated the taxable deposits in third-party accounts, which were made by the Petitioner, that respondent was able to determine the tax liability for 2004 and 2005. This does not 1n any way indicate that Petitioner was not subject to Federal income tax. We think another quote from Abrams v. Commissioner, as cited in Martin v. Commissioner, T.C. Memo. 1990-560, is appropriate. Citing Abrams v. Commissioner, 82 T.C. 403, 406-407 (1984), ü)b sestated; he short answer to all of Petitioner's arguments is that he is not exempt from Federal income tax. That quote certainly applies to the 17 Petitioner in the present case. Therefore, we 18 19 20 21 22 23 24 25 respondent's deficiency determinations, and now we turn to whether the Petitioner is liable for the section 6651(f) fraudulent failure to file additions to tax for 2004 and 2005. Section 6651(f) imposes the addition to tax of up to 75 percent, in the case of a fraudulent failure to file a tax return. The circumstances of the present case would cause a 75 percent addition to 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 18 19 20 21 22 23 24 25 apply if, in fact, respondent carries the burden of establishing fraud by clear and convincing evidence. See section 7454 (a) and Rule 142(b) of the Tax Court Rules of Practice and Procedure regarding respondent's burden. To satisfy this urden, respondent must show that, (1) payme t of tax exists; and (2) that the Petitioner intended to evade taxes by conduct intended to conceal, mislead or otherwise prevent the collection of taxes, and that the Petitioner failed to file a Federal income tax return for the two years in question. Clayton v. Commissioner, 102 T.C. 632, 646 (1994). See also Sadler v. Commissioner, 113 T.C. 99, 102 (1999), and T.C. 99, 102 (1999), and Parks v. Commissioner, 94 T.C. 654, 660-661 (1990). We believe respondent has established by clear and convincing evidence that a tax deficiency and an underpayment of tax exists in the present case for the reasons described previously. We now turn to whether respondent has established that Petitioner's underpayment of tax was due to fraudulent intent. The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Kings Court Mobile Home Park v. Commissioner 98 T.C. 511 (1992). Looking at the Petitioner's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 entire course of conduct is appropriate in determining whether the Petitioner had fraudulent intent. Stone v. Commissioner, 56 T.C. 213 (1971). Because direct proof of intent is rarely available, fraud may be proven by circumstantial evidence and reasonable inference from the factual record. Spies v. United States, 317 U.S. 492, 499 (1943). 8 Petitioner maintains that he believed he was not 9 required to file a Federal income tax return for 2004 10 11 12 13 and 2005 based upon the tax-protester arguments previously discussed. Petitioner's testimony and demeanor at trial were generally forthright and he was, for the 14 most part, straight-forward in his answers to the 15 16 17 questions posed to him by the Court and by respondent's counsel. However, when asked why he formed HCM and why he transferred money to HCM, 18 Petitioner merely said HCM was formed to "do good" 19 20 21 22 23 24 and he felt like it was appropriate to have his resources placed in HCM for that purpose. We find this testimony to be lacking in credibility because of the failure of the record to demonstrate that HCM actually engaged in any charitable activities, but rather simply was used to as a device to support the 25 Petitioner and his family. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 . 1 We also believe that because of 2 Petitioner's awareness and involvement with tax- 3 4 5 6 7 8 9 protester type arguments his use of HCM creates an inference that he was attempting to evade Federal income tax. Ecfcrc ECM in 2003, before the years in quartiom ny transfers to HCM in both 2004 and 20 would be subject to this inference that Petitioner engaged in deposits into HCM for purposes of evading Federal income tax. We believe this activity is 10 sufficient to sustain respondent's determination that 11 Petitioner is liable for the fraudulent failure to file penalty in both the years in question for this case. Because of the fact that we had sustained respondent's determinations as to the deficiency in income tax and the additions to tax, a decision will be entered for respondent in accord with this opinion. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 10:45 a.m., the above- entitled matter was concluded.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com