TAX COURT OPINION

Case: Angela D. Bradley
Docket Number: 8632-13S
Judge: Buch
Opinion Type: bench
Filed: 03/03/2015
Pages: 5

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 ANGELA D. BRADLEY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) Docket No. 8632-13S. ) ) ) ) ) O R D E R 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 Ronald L. Buch at Washington, D.C., 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, decision will be entered under Rule 155. (Signed) Ronald L. Buch Judge Dated: Washington, D.C. March 3, 2015 SERVED Mar 03 2015 Capital Reporting Company 3 Bench Opinion by Judge RONALD L. BUCH February 3, 2015 Angela D. Bradley v. Commissioner Docket No. 8632-13S THE COURT: THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION MAY NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This opinion is in conformity with Section 7459(b) and Rule 152. That's referring to you having brought this as a small tax case. This case was heard pursuant to Section 7463. That's what I'm referring to, the small case procedures of the Internal Revenue Code as in effect when the petition was filed. Unless otherwise indicated, any section references I might make are to the Internal Revenue Code as in effect in 2008, which at this point is the only year that I'm addressing, and all rule references are to the Tax Court's Rules of Practice and Procedure. Under Section 7463(b), the decision to be entered in this case is not reviewable by any other court, and this opinion may not be treated as precedent for any other case. I want to start with Respondent's pre-trial 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 memo. Respondent principally presents this case as one where the question is do we have a constructive dividend or are these shareholder loans? There isn't much to decide in the way of legal issues in this case because Ms. Bradley has made it very clear she wasn't intending to borrow from the corporation. These were erroneous entries made by an accountant who was putting numbers in a column and not properly accounting for them. But what the evidence clearly does show is that the corporation paid substantial amounts of personal expenses on behalf of Ms. Bradley. But what the record also shows, specifically in Exhibits 4 and 5, is that a substantial amount of those expenses were in fact paid by Ms. Bradley in real time; they were not shareholder loans, nor were they constructive distributions. Ms. Bradley paid the expenses directly by remitting money to pay the credit card accounts. So while Respondent asserts that there is a constructive distribution of $117,644 in 2008, what we in fact see in 2008 is that Ms. Bradley directly paid $83,957.43 of those expenses, and therefore that is not a constructive dividend or shareholder loans; those are amounts that she paid directly. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 That leaves a balance of $33,686.57, and 2 we're left with a question of what to do with that. 3 4 5 6 7 8 9 10 11 12 13 Ms. Bradley has said that she did not borrow funds, so there is not an argument here that that was in fact a shareholder loan. Then, if that's the case, then Respondent is correct that this is a constructive dividend and so, Ms. Bradley, we hold that you have a constructive dividend of $33,686.57. The only thing that leaves for us to decide then is the accuracy-related penalty under Section 6662(a). Respondent asserts both a negligence penalty and a substantial understatement penalty. 14 Whether the substantial understatement penalty 15 16 17 18 19 20 21 22 23 24 25 applies is computational, but I don't think we need to reach that question because I will turn to the question of negligence. I think as you yourself recognized during the trial, and as I think you said in the closing argument, the recordkeeping was off. Personal expenses were being paid for by company credit cards, and I think that rises to the level of negligence. You have a business, it's a closely held business, you're the principal, if not only shareholder, and it's very tempting to commingle 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 funds and use one credit card for both personal and business expenses, but that's what brought us here today. So I find that the negligence penalty applies for 2008. All remaining other issues have been either addressed by way of the stipulations or orally stipulated to on the record. So where that leaves us is decisions must be entered under Rule 155 in order to do the computations. That concludes our oral findings of fact and opinion. (Whereupon, at 6:21 p.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 25 866.488.DEPO www.CapitalReportingCompany.com