TAX COURT OPINION

Case: Ronald H. Sapp & Mary Sapp
Docket Number: 29754-11
Judge: Goeke
Opinion Type: bench
Filed: 03/30/2015
Pages: 7

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD H. SAPP & MARY SAPP, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 29754-11. ) ) ) ) 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Jacksonville, Florida on February 25, 2015, 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. A later opinion will be rendered relative to innocent spouse. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. March 30, 2015 SERVED Mar 31 2015 Capital Reporting Company 3 1 2 3 4 5 Bench Opinion by Judge Joseph Robert Goeke February 25, 2015 Ronald H. Sapp & Mary Sapp v. Commissioner Docket No. 29754-11 THE COURT: The Court has decided to render 6 Oral Findings of Fact and Opinion in this case and 7 8 the following represents the Court's Oral Findings of Fact and Opinion. The Oral Findings of 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 other case. The present matters before the Court are based upon the Stipulation of Facts and some brief testimony. It was submitted as a separate matter to try the deficiencies in federal income tax and additions to tax on the merits and was bifurcated pursuant to Rule 141(b) from a trial involving whether petitioner, Mary Sapp is an innocent spouse pursuant to Internal Revenue Code section 6015. A separate trial will be held involving the innocent spouse question. As stated, the present case involving the underlying tax liabilities was submitted by the parties with a Stipulation of Facts and attached exhibits and testimony was taken from petitioner, 25 Mary Sapp. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 There are numerous issues involved in determining the underlying tax liabilities for the years 2004 and 2006 which sae-the subject of a Notice of Deficiency issued by respondent, which asserted deficiencies in income tax in the amounts of $43,710,e $164,211 for the years 2004/2006, respectively. The 7 Notice of Deficiency also asserted additions to tax 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pursuant to sections 6651(a)(1) and 6662(a) for both of the years 2004 and 2006. Prior to the trial respondent noted for the record certain concessions. Regarding cost of goods sold for fuel, respondent has conceded that $16,717 of the amount of $20,896, which was originally disallowed in the Notice of Deficiency should be allowed. Regarding gross receipts which were increased in the Notice of Deficiency for 2004 in the amount of $144,314, respondent has conceded that the increase in gross receipts should be reduced by the amount of $20,102. Regarding the year 2006, respondent has conceded that Schedule C expense for fuel should be increased by $24,459 of the amount of 30,574 which was previously disallowed. Regarding gross receipts respondent in the Notice of Deficiency determined that gross receipts should be increased by $165,268 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 and now concedes that this amount is overstated in the amount of $23,528. Regarding the Schedule C depreciation which was disallowed in the Notice of 4 Deficiency in the amount of $92,441, respondent now 5 6 7 8 9 10 11 12 13 concedes that the disallowance was incorrect in the amount of $26,568. Regarding the cost of goods sold which was decreased in the Notice of Deficiency by $344,688, respondent has determined that additional costs of goods sold should be allowed in the amount of $186,132, thus reducing the amount of cost of goods sold in dispute to $158,556. Respondent has also allowed additional telephone and rent expenses offsetting portions of the amount disallowed in the 14 Notices of Deficiency in the amounts of $11,960 and 15 16 17 18 19 20 21 22 $29,119, respectively. At the trial petitioners did not contest any of the revised adjustments for 2004 or 2006 except that petitioner Mary Sapp testified that she believed that the cost of goods sold amount allowed by respondent which involved an adjustment in the amount of $158,556, as revised, was incorrect because she believed that the petitioner incurred costs of 23 materials in excess of the amounts allowed. Her 24 25 testimony, however, does not provide a sufficient basis for the Court to determine that respondent 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 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 erred in the revised amount of cost of goods sold. On that basis we sustain the adjustments as revised by respondent and the original adjustments in the amounts that were not revised by concessions respondent made at the beginning of the trial. That leaves only two issues left in dispute for the two years; 2004, 2006, those would be the additions to tax. Regarding the addition to tax related to delinquent filing of petitioner's federal income tax returns the parties have stipulated that the petitioners filed their 2004 federal income tax return on July 1, 2008, and they filed the 2006 federal income tax return also on July 1, 2008. Both of these returns were filed well after the extended due date of the returns. We note that regarding the addition to tax, respondent has the preliminary burden of going forward. Regarding the deficiencies in income tax we previously discussed petitioners bear the burden of proof pursuant to Rule 142(a) of the Tax Court Rules of Practice and Procedure. As petitioners do not qualify for the exception which would shift the burden of proof regarding the deficiencies pursuant to Code section 7491. The addition to tax under section 6662 is to apply to an underpayment of tax required to be 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 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 shown the return. It generally provides that an amount equal to 20 percent of the portion of the underpayment of tax should be determined as an addition to tax when the underpayment of tax is the result of the substantial underpayment or the result of negligence. Respondent maintains that petitioner substantially understated their income tax liabilities for 2004 and 2006 by greater than 10 percent of the tax required to be shown on the return, or $5,000, as provided by section 6662(d)(1)(A). Petitioner would have the burden to establish that their understatement of tax was due to reasonable cause given the fact that respondent's position is supported by the facts as stipulated by the parties. Petitioners offered no evidence to establish reasonable cause and accordingly we sustain the section 6662 penalty which the revised deficiency amounts as determined based upon respondent's concessions. Section 6651(a)(1) provides a penalty for the failure to file an income tax return on the date prescribed unless it is shown that such failure is due to reasonable cause and not willful neglect. In the current situation the amount of that addition to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 tax would be 25 percent based upon the computation that's shown in section 6651(a)(1) of the statute. There is no question that the returns were filed in a delinquent manner and petitioners have offered no evidence to show reasonable case. Therefore, respondent's position relative to the addition to tax under section 6651(a)(1) is sustained. Because of the respondent's concession a Rule 155 computation will be necessary and, as stated previously, this opinion only addresses the issues which were separated pursuant to Rule 141(b) and does not address petitioner Mary Sapp's claim of innocent spouse relief for the years 2004 and 2006 which will be subject to a subsequent trial and opinion. This concludes the Court's Oral Findings of Fact and Opinion in this case. (Whereupon, at 11:56 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 25 866.488.DEPO www.CapitalReportingCompany.com