TAX COURT OPINION

Case: Leonard William Tobin
Docket Number: 13653-18
Judge: Kerrigan
Opinion Type: bench
Filed: 11/04/2019
Pages: 12

23 UNITED STATES TAX COURT WASHINGTON, DC 20217 SR LEONARD WILLIAM TOBIN, Petitioner(s), v. ) ) ) ) ) Docket No. 13653-18. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) 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 Kathleen Kerrigan at Seattle, Washington, containing here 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 shall be entered under Rule 155. Dated: Washington, D.C. November 4, 2019 (Signed) Kathleen Kerrigan Judge SERVED Nov 06 2019 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Kathleen Kerrigan October 8, 2019 Leonard William Tobin v. Commissioner of Internal Revenue Docket No. 13653-18 THE COURT: The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal 10 Revenue Code and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. Unless otherwise indicated, all 12 section references are to the Internal Revenue Code in 13 effect for the tax year in issue, and all Rule references 14 are to the Tax Court Rules of Practice and Procedure. All 15 monetary amounts are rounded to the nearest dollar. 16 17 18 By notice of deficiency dated May 21, 2018, respondent determined a deficiency of $155 for 2015. On september 17, 2018, respondent filed an answer to the 19 amended petition which asserted that petitioner is liable 20 for an increased deficiency of $23,811, an addition to tax 21 pursuant to section 6651(a)(1) of $1,143, and a penalty 22 Pursuant to section 6662(a) of $4,793. After respondent's 23 concession, the issues for our consideration are whether 24 petitioner received wages of $142,000 and a distribution 25 of $773 from his health savings account (HSA), and whether Petitioner is liable for an addition to tax pursuant to section 6651(a)(1) and a penalty pursuant to section 4 6662(a). Trial in this case was conducted in Seattle, 1 2 3 4 5 Washington, on October 7, 2019. Petitioner represented 6 7 8 9 10 11 12 13 14 15 16 17 18 himself. Respondent was represented by Patsy A. Clarke. The parties' stipulation of facts was admitted into evidence along with the attached exhibits. We find the following facts: FINDINGS Petitioner resided in Washington when he timely filed his petition. During 2015, petitioner was an employee of Triple Canopy, 1nc. 1t issued petitioner a Form W-2 and Earnings Summary for 2015 reporting wages of $142,000. Petitioner performed private security services for Triple Canopy, Inc. For part of 2015 petitioner was in Iraq. During 2015 a distribution of $773 was made from 19 petitioner's HSA. According to his account statement, 20 Petitioner withdrew $261 from an HSA with FPS Trust 21 Company, LLC. HSA Bank sent petitioner a 1099-SA, 22 Distributions From an HSA, Archer MSA, or Medicare 23 Advantage MSA, which reported a distribution of $513. 24 25 Petitioner submitted a Form 1040, U.S. Individual Income Tax Return, dated April 13, 2016, for 5 2015. He filed this return electronically. Respondent sent petitioner a letter advising him that his Form 1040 did not contain an original signature and returned his Form 1040. On July ll, 2016, respondent received Petitioner's resubmitted Form 1040 with an original signature and filed it. On his return petitioner reported zero wages and did not attach a Form 2555, Foreign Income Exclusion. On September 17, 2018, respondent filed an answer which asserted that petitioner is liable for a section 6662(a) accuracy-related penalty for 2015. 1 2 3 4 5 6 7 8 9 10 11 12 Respondent's counsel and the Associate Area Counsel signed 13 14 15 16 17 18 19 20 21 the answer to the amended petition. OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a); helvering, 290 U.S. 111, 115 (1933). In unreported income cases such as this, the Commissioner must establish "some evidentiary foundation" connecting the taxpayer with the income- 22 Producing activity or demonstrating that the taxpayer 23 actually received unreported income. See Weimerskirch v. 24 Commissioner, 596 F.2d 358, 361-362 (9th Cir. 1979), rev'g 25 67 T. C. 672 (1977) ; see also Edwards v. Commissioner, 680 Em (43)406-2250|operationseescribersnettwww.escribetsmet F.2d 1268, 1270-1271 (9th Cir. 1982) (holding that the Commissioner's assertion of a deficiency is presumptively 6 correct once some substantive evidence is introduced demonstrating that the taxpayer received unreported income). The requisite evidentiary foundation is minimal and need not include direct evidence. See Banister v. Commissioner, T.C. Memo. 2008-201, aff'd, 418 F. App'x 637 (9th Cir. 2011). If the Commissioner introduces some evidence 1 2 3 4 5 6 7 8 9 10 that the taxpayer received unreported income, the burden 11 shifts to the taxpayer, who must establish by a 12 preponderance of the evidence, that the deficiency was 13 arbitrary or erroneous. See Hardy v. Commissioner, 181 14 F.3d 1002, 1004 (9th Cir. 1999), aff'g T.C. Memo. 1997-97. 15 Respondent has met the burden of production with respect 16 to petitioner's unreported income. Petitioner has not 17 shown that the burden of proof should shift to respondent 18 as to any relevant factual issue. Petitioner has the 19 burden to show by a preponderance of the evidence that the 20 deficiency was arbitrary or erroneous. 21 Section 61(a) provides that gross income 22 generally includes all income from whatever source 23 derived, including wages. See also Commissioner v. 24 Glenshaw Glass Co., 348 U.S. 426, 429-430 (1955); Wilcox 25 v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988), 73) 406-2 250 J operations@escribersaet i www.escrbersaet aff'g T.C. Memo. 1987-225; sec. 1.61-2(a)(1), Income Tax 7 Regs. The Supreme Court has held consistently that Congress defined gross income to exert the "'full measure of its taxing power.'" Commissioner v. Glenshaw Glass Co., 348 U.S. at 429 (quoting Helvering v. Clifford, 309 U.S. 331,334 (1940)). U.S. citizens are generally taxed on income earned outside of the United States unless a specific exclusion applies. Cook v. Tait, 265 U.S. 47, 56 (1924); 1 2 3 4 5 6 7 8 9 10 Specking v. Commissioner, 117 T.C. 95, 101-102 (2001), 11 aff'd sub nom. Haessly v. Commissioner, 68 F. App'x 44 12 (9th Cir. 2003), and aff'd sub nom. Umbach v. 13 Commissioner, 357 F.3d 1108 (10th Cir. 2003). Exclusions 14 15 from income are construed narrowly; taxpayers must bring themselves within the clear scope of the exclusion. 16 SPecking v. Commissioner, 117 T.C. at 101. Section 911(a) 17 provides, in relevant part, that a qualified individual 18 may elect to exclude his or her foreign earned income from 19 gross income. Sec. 911(b)(2)(D). 20 Petitioner did not make any valid arguments that 21 his wages are excludable from gross income because of any 22 specific provision of law. See Rodriguez v. Commissioner, 23 T.C. Memo. 2009-92. We do not need to discuss 24 petitioner's frivolous and groundless arguments. See 25 Heisey v. Commissioner, T.C. Memo. 2002-41, slip op. at 4, (973)406-2250loperations@escribersnet[wwwascribersaet 1 2 3 aff'd, 59 F. App'x 233 (9th Cir. 2003). We shall not painstakingly address petitioner's assertions "with somber reasoning and copious citation of precedent; to do so 8 4 might suggest that these arguments have some colorable 5 merit." Crain v. Commissioner, 737 F.2d 1417, 1417 (5th 6 7 8 9 Cir. 1984). In the alternative, petitioner contends that his wages should not be taxable because they were for services Performed in foreign countries. He did not make the 10 necessary election pursuant to section 911(a). 11 Petitioner's wages are taxable. 12 Respondent met the burden of production for 13 distributions from petitioner's HSA. Section 223(f)(1) 14 Provides for an exclusion from gross income of an amount 15 paid or distributed from an HSA if the payment or 16 distribution is used exclusively for the beneficiary's 17 medical expenses. Amounts paid or distributed from an HSA 18 that are not used exclusively for qualified medical 19 expenses of the account beneficiary are included in gross 20 21 income. Sec. 223(f)(2). Petitioner contends that the distributions from 22 his HSAs were for medical expenses. He produced documents 23 which show receipts for medical treatment in California. 24 At the time of the treatment, his passport showed that he 25 was not in the United States. He had no additional 9 documents to substantiate that the amounts on the receipts were actually paid. Petitioner's distributions from his HSAs are included in income. The Commissioner bears the burden of production with respect to a taxpayer's liability for additions to tax and penalties, requiring the Commissioner to come forward with sufficient evidence indicating that the imposition of additions to tax and penalties is appropriate. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the Commissioner satisfies the burden of production, the taxpayer must come forward 1 2 3 4 5 6 7 8 9 10 11 12 with persuasive evidence that the Commissioner's 13 determination of additions to tax and penalties is 14 15 incorrect or that the taxpayer has an affirmative defense such as reasonable cause. See Rule 142(a); Higbee v. 16 Commissioner, 116 T.C. at 446-447. 17 Section 6651(a)(1) authorizes the imposition of 18 an addition to tax for failure to timely file a return 19 unless it is shown that such failure was due to reasonable 20 cause and not due to willful neglect. See United States 21 v. Boyle, 469 U.S. 241, 245 (1985). A failure to timely 22 file a Federal income tax return is due to reasonable 23 cause if the taxpayer exercised ordinary business care and 24 prudence but nevertheless was unable to file the return 25 within the prescribed time, typically for reasons outside cnners the taxpayer's control. 10 see McMahan v. Commissioner, 114 F.3d 366, 369 (2d Cir. 1997), aff'g T.C. Memo. 1995-547. Petitioner contends that he made a mistake when he filed the unsigned return. section 6061(a) provides that any return or other document required to be made under any provision of the internal revenue laws or regulations must be signed. Petitioner's first Form 1040 was returned because it did not contain an original signature. Petitioner's resubmitted return was filed on July 11, 2016, and therefore, was filed late. Petitioner did not show reasonable cause for filing the return late. section 6662(a) imposes a 20% penalty on any 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Portion of an underpayment of tax attributable to, among 15 other things, negligence or disregard of rules or 16 regulations within the meaning of subsection (b)(1), or 17 any substantial understatement of income tax within the 18 meaning of subsection 03)(2). Only one accuracy-related 19 Penalty may be applied with respect to any given portion 20 of an underpayment, even if that portion is subject to the 21 penalties on more than one of the grounds set out in 22 23 section 6662 03). Sec. 1.6662-2(c), Income Tax Regs. An "understatement" is defined as the excess of 24 the tax required to be shown on the return over the tax 25 actually shown on the return, less any rebate. Sec. 6662(d)(2)(A). An understatement is "substantial" if it 11 exceeds the greater of 10% of the tax required to be shown on the return or $5,000tn1 . Sec. 6662(d) (1) (A). The section 6662(a) penalty does not apply with respect to any portion of the underpayment for which it is shown that the taxpayer had reasonable cause and acted in good faith. Sec. 6664(c)(1). Regulations promulgated under section 6664(c) provide that the determination of reasonable cause and good faith "is made on a case-by-case 1 2 3 4 5 6 7 8 9 10 basis, taking into account all pertinent facts and 11 12 13 circumstances." Sec. 1.6664-4(b)(1), Income Tax Regs. In Graev v. Commissioner, 149 T.C. 485 (2017), supplementing and overruling in part 147 T.C. 460 (2016), 14 we held that the Commissioner's burden of production under 15 section |7491(c)(1) |tm2]includes establishing compliance with 16 the supervisory approval requirement of section 6751(b). 17 Section 6751(b)(1) provides that "[n]o penalty under this 18 title shall be assessed unless the initial determination 19 of such assessment is personally approved (in writing) by 20 the immediate supervisor of the individual making such 21 determination or such higher level official as the 22 Secretary may designate." 23 In Roth v. Commissioner, T.C. Memo. 2017-248, 24 at *10-*11 (citing Chai v. Commissioner, 851 F.3d 190, 221 25 n.24 (2d Cir. 2017), aff'g in part, rev'g in part T.C. nnners Memo. 2015-42), 12 this Court observed that the Commissioner routinely asserts section 6662 penalties in answers and that we have jurisdiction over them pursuant to section 6214(a). We held that the Commissioner may, consistent with both Chai and Graev, assert additional penalties in the answer and that a delegate of the Chief Counsel for the IRS (who represents the Commissioner) is the proper individual to do so in this Court. Roth v. Commissioner, at *11. We held in Roth v. Commissioner, at *11, that IRS counsel, serving as the Chief Counsel's delegate, had complied with section 6751(b)(1) by obtaining the approval and signature of the Associate Area Counsel who was her immediate supervisor. In this case the Associate Area 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Counsel acting as respondent's counsel's immediate 16 supervisor signed the amended answer. Therefore, 17 18 respondent has met the burden of production. Respondent also bears the burden of proof with 19 respect to the 2015 penalty, because it was asserted for 20 the first time in respondent's answer. See Rule 142(a). 21 The evidence establishes that petitioners' understatement 22 of income tax for 2015 was substantial within the meaning 23 of section 6662(d)(1), and therefore respondent has met 24 the burden of proof. Petitioner has not shown reasonable 25 cause and is liable for the penalty pursuant to section enners 6662. 13 A decision will be entered pursuant to Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 2:39 p.m., the above-entitled 1 2 3 4 5 6 matter was concluded.) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25