TAX COURT OPINION

Case: David K. Paul
Docket Number: 26932-12
Judge: Holmes
Opinion Type: bench
Filed: 06/18/2014
Pages: 7

54 M4 SEc UNITED STATES TAX COURT WASHINGTON, DC 20217 DAVID K. PAUL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 26932-12. ) ) ) ) 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 above case before Judge Mark V. Holmes at Buffalo, NY, 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 under Rule 155. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. June 18, 2014 SERVED Jun 20 2014 Capital Reporting Company 3 1 2 Bench Opinion by Judge Mark V. Holmes June 2, 2014 3 David K. Paul v. Commissioner 4 Docket No. 26932-12 5 6 7 THE CLERK: All rise. THE COURT: Please be seated. Recall Paul. THE CLERK: Recalling from the calendar 8 Docket Number 26932-12, David K. Paul 9 THE COURT: Okay. In this case, the Court 10 has decided to render oral findings of fact and 11 opinions in the following: It ia t_he Court's oral 12 finding of factj t-ha..t the case is made pursuant to the 13 authority granted by Section 7459 (b) of the Internal 14 Revenue Code of 1986 as amended, and Rule 152 of the 15 Tax Court's Rules of Practice and Procedure. This 16 case began when Mr. Paul filed a petition. He was a 17 resident of New York State both then and now. arties. 18 did stipulate to several exhibits, the objections. to 19 which the Court overruled drcrs-e--~~ that stipulation 20 e·f those exhibits in the case. Mr. Paul was a 21 software engineer, and is. a software engineer for 22 Xerox Corporation, and received slightly more than 23 $100,000 in wages in both 2009 and 2010. However, 24 when he filed tax returns f.or those years, he showed 25 zero dollars in wages. He c did (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 4 1 2 3 have tax withholding for both years, and the IRS determined his tax liability by referring to the W-2 forms that had been filed by Xerox. Mr. Paul at first 4 disputed that wages are includable as income under 5 IRC Section 61. The are of course exceptions; 6 Section 61 specifically includes income from whatever 7 source derived, including compensation for services. 8 Mr. Paul then filed an amended petition, hich he 9 raised other tax protestor-type arguments, including 10 Commissioner error presuming jurisdiction over ky 11 personj Xerox Corporation is not a United States 12 Corporation Xerox Corporation is is not an agency of 13 the United States j ghe Commissioner does not contend 14 15 that petitioner has conducted business in any r+ew c4r-a-fAe4 location that is under the exclusive 16 jurisdiction of the United States Government and so 17 forth. 18 He then withdrew his first amended petition 19 and substituted a second amended petition in which he 20 withdrew all these sort of classic taxpayer arguments 21 and instead substituted simple argument, such as, 22 he Commissioner errored in relying on unsworn 23 third party information in making his determination 24 and addedpquote( the Commissioner does not intend to 25 produce a witness to testify that the payments (866) 448 - DEPO www.CapitalReportingCompany.com 2014 5 I (cid:16)042 Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 reported on the forms, W-2, represent taxable income to petitioner. He is essentially arguing that the IRS has the burden of proof and can meet that burden only by issuing a notice of deficiency a Of-eevrea it ic set evidence admissible as if in a Court. Well, no, this isn't right. The IRS is in fact a giant information-sorting bureaucracy that has to be able to rely on third party information and reports that it gets in the ordinary course of its business. And that is of course is exactly what happened here; the IRS got reports of the income received from Xerox, 12 Mr. Paul's employer. And then when Mr. Paul reported 13 that he had zero wages on his tax return, the IRS 14 computers returned and detected the discrepancy. e6 15 That discrepancy, the difference between what a 16 taxpayer shows on his return and what the IRS says he 17 owes, is what's called a deficiency under Internal 18 Revenue Code, Section 6211. 19 The IRS doesn't conduct a trial in 20 determining a deficiency. It just determines it as 21 best as it can with the information it has, 22 recognizing that it lacks information about the 23 particular circumstances that each individual 24 taxpayer has: Deductions, credits, exemptions. In 25 any event, the IRS calculated this de ficiency from (866) 448 - DEPO www.CapitalReportingCompany.com 2014 Capital Reporting Company 6 1 Mr. Paul, and under Section 6212 was authorized and 2 did issue a notice of cnact deficiency to Mr. Paul. 3 Only if a petition is filed in Tax Court do the usual 4 5 6 7 8 9 judicial procedures like taking testimony and a 7452, f rules of evidence apply IRC Section When a taxpayer starts a case in Tax Court, he has the burden of proof. He must produce evidence rebutting the numbers in the notice 10 of deficiency. There are a few exceptions again, 11 Section 7491, but they don't apply here, in a case 12 where Mr. Paul hasn't cooperated at all with the IRS 13 in trying accurately to determine how much tax he in 14 15 fact owes for the two years in question. By insisting that the IRS can't rely on records from his employer 16 without proof .of their admissibility, Mr. Paul has 17 failed in his burden of proof. Now, the Court 18 explained all of this to him, explained that if he 19 persisted he would lose the benefit of potential I 20 alimony exclusion, dependent exemptions for a minor 21 child, and perhaps any other deductions or exclusions 22 or benefits that W 4 taxpayers commonly are entitled to. y re e e+<f 23 (Even secured thefrespondent 's lawyer, who is willing 24 to consider, if Mr. Paul agreed to come back into the I 25 system and file normal looking returns, to give (866) 448 - DEPO www.Ca pitalReportingCompany.com 2014 Capital.Reporting Company 7 1 2 3 4 5 6 7 him those deductions and exclusions and credits that he would have been entitled to had he filed a normal return. Mr. Paul declineqg go be it. at leaves only the issue of penalty. According to regulation 26 CFR, Section 1.6662-3(b)(1) of the Internal -- I'm sorry. According to 26 CFR, Section 1.6662-3(b)(1), negligence is any failure to make a reasonable 8 attempt to comply with the Internal Revenue laws or 9 to exercise ordinary and reasonable care in the 10 preparation of return. According to regulation 26 11 12 13 14 15 CFR, Section 1.6662-3(b)(2), negligence is strongly indicated where the taxpayer fails to include on an income tax return an amount of income shown on an information return, such as a W-2. The accuracy- related penalty does not apply to any to any portion 16 of an underpayment where the taxpayer acted with 17 reasonable cause and in good faith. See Section 18 6664-(c)(1). But it is the taxpayer who ultimately 19 bears the burden of proving that he has exercised 20 reasonable care and accu*ate faith. The petitioner ik 3aed 21 here, Mr. Paul, filed tax returns showing zero 22 dollars in wages and throughout the exam, appeals, 23 and here in front of Tax Court, consistently denied 24 that his income were wages. Therefore, the penalty 25 w &bd be sustained in full. The parties did agree to (866) 448 - DEPO www.Ca pitalReportingCompany.com 20 l4 Capital Reporting Company 1 a minor concession by the IRS of mistaken addition öf ot- 8 2 Social Security withholding to Mr. Paul's income for 3 4 2010, so I'll issue a decision under Rule 155. It'll take a little bit longer, but at least the numbers 5 will be right this way. This concludes the court's 6 oral findings of fact in this case. We're off the record. (Whereupon, at 11:11 a.m., the above- entitled matter was concluded) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2014