TAX COURT OPINION

Case: Kenneth A. Bartlett, Jr.
Docket Number: 12846-23
Judge: Toro
Opinion Type: bench
Filed: 10/22/2024
Pages: 12

W:niteb ~tates max ~ourt Washington, DC 20217 KENNETH A. BARTLETT, JR., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 12846-23 ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is hereby ORDERED that the Clerk of the Court shall transmit to petitioner and respondent a copy of the pages of the transcript of the trial in this case held before Judge Emin Toro at Portland, Oregon, containing the Court's Oral Findings of Fact and Opinion rendered at the trial session at which this case was heard. In accordance with the Oral Findings of Fact and Opinion, a decision will be entered for respondent as to the deficiency and the additions to tax under section 6651(a)(l) and section 6654(a), and for petitioner as to the addition to tax under section 6651(a)(2). (Signed) Emin Toro Judge Served 10/22/24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 3 Bench Opinion by Judge Emin Toro October 2, 2024 Kenneth A. Bartlett, Jr. v. Commissioner of Internal Revenue Docket No. 12846-23 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 upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. All monetary amounts are rounded to the nearest dollar. In this deficiency case, the Internal Revenue Service (IRS) issued to Mr. Bartlett a notice of deficiency for the tax year 2017 (Notice). In the Notice, dated May 15, 2023, the IRS determined an income tax deficiency of $34,911. It also determined that Mr. Bartlett was liable for the following three additions to 24 tax: 25 llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 1 2 3 4 5 6 7 8 9 10 11 12 1. A section 6651(a)(1) addition to tax of 4 $7,761 for failure to timely file his income tax return; 2. A section 6651(a)(2) addition to tax of $8,624 for failure to timely pay his income taxes; and 3. A section 6654(a) addition to tax of $825 for failure to timely make estimated tax payments. The Commissioner has conceded the addition to tax under section 6651(a)(2), and we will not discuss it further. As we will explain, we will uphold the remaining determinations made in the Notice. On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the 13 following facts: 14 15 16 17 FINDINGS OF FACT Mr. Bartlett lived in the State of Washington when the Petition in this case was filed. He did not file a federal income tax return for 2016, although he was 18 required to. 19 20 21 22 23 24 25 For 2017, the IRS received several third-party reports of payments to Mr. Bartlett. According to a Wage and Income Transcript the IRS maintained with respect to Mr. Bartlett for that year, Logic2020 Inc. issued a Form W-2, Wage and Tax Statement, showing "Wages, Tips and Other Compensation" of $71,450 paid to Mr. Bartlett. Likewise, Amazon Corporate LLC issued a Form W-2 showing llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 1 2 3 4 5 6 7 8 9 10 11 "Wages, Tips and Other Compensation" of $79,524 paid to 5 Mr. Bartlett. Together, the Forms W-2 reflect $150,974 of compensation for Mr. Bartlett. The IRS also received information reported on Forms 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. from Charles Schwab Bank, reflecting taxable distributions totaling $2,082. The remaining transcript entries, predominantly relating to Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions, reflect a cumulative capital gain 12 of at least $54. 13 Mr. Bartlett did not file a federal income tax 14 return for 2017. 15 16 17 18 19 20 21 22 23 The IRS issued the Notice that gave rise to this case, determining for 2017 an income tax deficiency of $34,911 based on $150,974 in wages, tips, or other compensation; $2,082 in taxable distributions from pensions; and $54 in capital gain that had gone unreported by Mr. Bartlett. The Notice reflected a filing status of married filing separately and allowed a standard deduction and exemption ($6,350 and $4,050, respectively). The Notice also determined additions to tax in the amounts we 24 already discussed. 25 While represented by counsel, Mr. Bartlett llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 timely filed a Petition contesting all the determinations 6 made in the Notice. Eventually, Mr. Bartlett's counsel withdrew from the representation, and Mr. Bartlett did not otherwise communicate with the Commissioner to prepare his case for trial. On September 9, 2024, the Commissioner filed a Motion to Dismiss for Failure to Properly Prosecute, which was later supplemented. On September 13, 2024, the Court directed Mr. Bartlett to respond to the Commissioner's Motion on or before September 20, 2024, and set respondent's Motion for hearing at the Court's trial session scheduled to commence in Portland, Oregon, on September 30, 2024. Mr. Bartlett, however, did not respond to the Motion or appear at the hearing on September 30, 2024. The Commissioner appeared and was 16 heard. 17 18 19 20 21 22 This case was set for trial on October 1, 2024. Mr. Bartlett did not appear, and no appearance was entered on his behalf. Tamila F. Bishop Frankel appeared on behalf of the Commissioner. Ryan Khalife was specially recognized to appear on behalf of the Commissioner. We heard testimony from an IRS supervisory revenue agent, 23 Jeremy Frey. 24 25 I. Unreported Income and Burden of Proof OPINION llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 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 We turn first to the deficiency determination. 7 The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Merkel v. Commissioner, 192 F.3d 844, 852 (9th Cir. 1999), aff'g 109 T.C. 463 (1997). In cases involving unreported income in the Ninth Circuit, to which an appeal in this case would ordinarily lie, see I.R.C. § 7482(b)(1)(A), this general rule is subject to the following conditions: For the presumption to apply . . . the Commissioner must base the deficiency on some substantive evidence that the taxpayer received unreported income. If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer to show by a preponderance of the evidence that the deficiency was arbitrary or erroneous. If the [taxpayer] succeeds in showing that the deficiency was arbitrary or erroneous, the burden shifts back to the Commissioner to show that the [determination] was correct. Hardy v. Commissioner, 181 F.3d 1002, 1004-05 (9th Cir. 1999) (citations omitted), aff'g T.C. Memo. 1997-97; see also Walquist v. Commissioner, 152 T.C. 61, 67 (2019); Caldwell v. Commissioner, T.C. Memo. 2022-51, at *5 ("In cases of unreported income, the Commissioner must establish an evidentiary foundation connecting the taxpayer to the income-producing activity, Weimerskirch v. llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 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 Commissioner, 596 F.2d 358, 361 (9th Cir. 1979), rev'g 67 8 T.C. 672 (1977), or demonstrate that the taxpayer actually received income, Edwards v. Commissioner, 680 F.2d 1268, 1270-71 (9th Cir. 1982)."). Gross income generally includes all income from whatever source derived. See I.R.C. § 61(a). It specifically includes compensation for services, see I.R.C. § 61(a)(1), gains from dealings in property, see I.R.C. § 61(a)(3), and pensions, see I.R.C. § 61(a)(10). According to the record before us, Mr. Bartlett did not file a return for 2017. In view of the record, including the evidence adduced at trial-for example, the Wage and Income Transcript and Mr. Frey's testimony, the testimony-the ET Commissioner satisfied his burden to "introduce[] some evidence that the taxpayer received unreported income." Hardy v. Commissioner, 181 F.3d at 1004-05; Caldwell, T.C. Memo. 2022-51, at *5. Mr. Bartlett has presented nothing to counter this evidence. We will therefore sustain the deficiency determination reflected in the Notice. II. Additions to Tax We turn next to the additions to tax. The Commissioner determined that Mr. Bartlett is liable for additions to tax under sections 6651(a)(1) and 6654(a) for 2017. Section 7491(c) imposes upon the Commissioner the burden of production with respect to these additions to llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 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 tax. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001) 9 ET (holding that respondent bears the initial burden of the Commissioner production for additions to tax under section 6651); Wheeler v. Commissioner, 127 T.C. 200, 207 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008) (same holding as to the section 6654 addition to tax). Once the Commissioner meets this burden, the burden of proof is on Mr. Bartlett to show that the Commissioner's determination is incorrect or that the taxpayer has an affirmative defense. See Higbee, 116 T.C. at 446-47. A. Section 6651(a)(1) Addition to Tax Section 6651(a)(1) imposes an addition to tax for failure to file a timely return unless the taxpayer proves that such failure is due to reasonable cause and not willful neglect. See Wheeler, 127 T.C. at 207. The addition to tax is equal to 5% of the amount required to be shown on a taxpayer's return for each month the failure to file continues, but is not to exceed 25% of the amount required to be shown on the return in total. See I.R.C. § 6651(a)(1). For purposes of the addition to tax under section 6651(a)(1), a substitute for return is not treated as the filing of a return by the taxpayer. See I.R.C. § 6651(g)(1) (disregarding a substitute for return prepared under section 6020(b) for purposes of section 6651(a)(1). (1)). ET Section 6651(c)(1) applies a coordination rule when the llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 1 2 3 4 5 6 7 8 9 Commissioner determines additions to tax under both 10 paragraph (a)(1) and (a)(2) of section 6651. The Commissioner introduced evidence showing that Mr. Bartlett did not file an income tax return for tax year 2017, despite having an obligation to do so, see I.R.C. § 6012(a). The Commissioner has therefore met his initial burden of production. Mr. Bartlett has presented no contrary evidence. We therefore uphold the Commissioner's determination as to the addition to tax 10 under section 6651(a)(1). 11 B. Section 6654 Addition to Tax 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Section 6654 provides for an addition to tax if the taxpayer had an obligation to make estimated tax payments and failed to do so. An individual taxpayer generally has an obligation to pay estimated tax for a particular year only if he has a non-zero "required annual payment" for that year. I.R.C. § 6654(d). A "required annual payment" is equal to the lesser of (1) 90 percent of the tax shown on the individual's return for that year (or, if no return is filed, 90 percent of his tax for such year), or (2) if the individual filed a return for the immediately preceding year, 100 percent of the tax shown on that return. I.R.C. § 6654(d)(1). If a prior year return is not filed, as here, the second test is inapplicable. See I.R.C. § 6654(d)(1)(B). There are also llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 three additional exceptions: (1) the tax due for a 11 particular year is less than $1,000, see I.R.C. § 6654(e)(1); (2) the taxpayer had no tax liability in the preceding 12-month tax year and was a citizen or resident of the United States, see I.R.C. § 6654(e)(2); or (3) the taxpayer qualifies for an equitable waiver under section 6654(e)(3). The Commissioner's burden of production under section 7491(c) requires him to produce evidence that Mr. Bartlett had a required annual payment for tax year 2017 under section 6654(d) and that he falls outside the three exceptions enumerated in section 6654(e). See Wheeler, 127 T.C. at 207. The record shows that the Commissioner has met his burden. Again, Mr. Bartlett has presented no contrary evidence, so we uphold the Commissioner's determination as to the addition to tax under section 17 6654(a). 18 III. Conclusion 19 20 21 22 23 24 25 In view of the foregoing, decision will be entered for the Commissioner as to the deficiency and the additions to tax under section 6651(a)(1) and section 6654(a), and for Mr. Bartlett as to the addition to tax under section 6651(a)(2). The Commissioner's Motion, as supplemented, will be denied as moot. This concludes the Court's oral findings of fact llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net and opinion in this case. 12 (Whereupon, at 11:46 a.m., the above-entitled matter was concluded.) 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 llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 13 CASE NAME: Kenneth A. Bartlett, Jr. v. Commissioner DOCKET NO.: 12846-23 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Bruce Carlson on October 2, 2024 before the United States Tax Court at its session in Portland, OR, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. _______________________________________________ Susan Patterson, CDLT-174 10/10/24 Transcriber Date _______________________________________________ Traci Fine, CDLT-169 10/13/24 Proofreader Date llii•tAH (973) 406-2 250 I operations~ escribers.net I www.escribers.net