TAX COURT OPINION

Case: Mahdi Zadeh
Docket Number: 16045-15
Judge: Lauber
Opinion Type: bench
Filed: 01/03/2017
Pages: 8

UNITED STATES TAX COURT DRC WASHINGTON, DC 20217 MAHDI ZADEH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 16045-15. ) ) ) 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 Albert G. Lauber at Washington, D.C., on December 15, 2016, containing his oral findings of fact and opinion rendered after conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Albert G. Lauber Judge Dated: Washington, D.C. January 3, 2017 SERVED Jan 03 2017 Capital Reporting Company 3 1 2 Bench Opinion by Judge Albert G. Lauber December 15, 2016 3 Mahdi Zadeh v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 Docket No. 16045-15 THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and it shall not be relied on as precedent in any other case. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. All statutory references are to the Internal Revenue Code as in effect for 2012, and all Rule references are to the Tax Court Rules of Practice and Procedure. Mahdi Zadeh appeared on his own behalf and 15 (cid:16)042 Andrew K. Glover appeared on behalf of respondent. 16 Petitioner resided in Maryland when he filed his 17 18 19 20 21 22 23 24 25 petition. Respondent determined a deficiency of $1,728 in petitioner's federal income tax for 2012. The principal issue for decision is whether petitioner failed to report certain non-employee income. FINDINGS OF FACT In 2012, petitioner worked part-time as an independent contractor for Leapforce, Inc. His 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 testimony concerning the nature of his work was not entirely clear, but it appears that he worked on software connected to Google Translate that enabled Internet browsers to obtain translations of material 5 written in Farsi. He testified that he performed 6 7 8 these services from his home or from other locations where an Internet connection was available. He testified that this work was somehow connected to 9 Google's Serbian operations. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Petitioner timely filed his 2012 federal income tax return, reporting negative taxable income and zero income tax liability and claiming an earned income tax credit (EITC) of $396. The IRS selected his return for examination. On the basis of a third- party information report from Leapforce, the IRS determined that petitioner had failed to report $8,931 of nonemployee compensation. On the basis of a third-party information report from USAA Federal Savings Bank, the IRS determined that petitioner had failed to report $21 of interest income. On March 23, 2015, the IRS sent petitioner a timely notice of deficiency for 2012. In this notice the IRS increased his net income by $8,321, reflecting the two items of unreported income 25 mentióned above, less a deduction for a portion of 866.488.DEPC) www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 his self-employment tax. The IRS determined an income tax liability of $274 and a self-employment tax liability of $1,097; as a corollary of these adjustments, the IRS decreased his EITC by $357 to $39. This produced a total deficiency of $1,728. Petitioner timely petitioned this Court on June 22, 2015. In his petition he did not assign error with respect to either item of unreported income, with respect to his liability for self- employment tax, or with respect to the disallowed portion of his EITC. He instead asserted: "I have been targeted by the U.S. Government because of my national origin" and "I disagree with the IRS's determination that a levy be imposed on my wages." The notice of deficiency did not impose a levy on his wages, nor is there any other evidence that the IRS has levied on his wages in connection with his income tax liability for 2012. On September 28, 2016, respondent filed a 20 First Request for Admissions and served petitioner 21 with a request for admissions. In these requests 22 23 24 25 respondent asked petitioner to admit: (1) that he received $21 of interest income from USAA Federal Savings Bank in 2012; (2) that he failed to report the $21 of interest income on his 2012 return; (3) 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 that he received $8,931 of nonemployee compensation income from Leapforce in 2012; and (4) that he failed to report the $8,931 of nonemployee compensation on his 2012 return. Petitioner did not respond to this discovery request. Because he failed to respond to the request for admissions, the matters therein are deemed admitted under Rule 90(c). OPINION The IRS's determinations in a notice of deficiency are generally presumed correct, though the taxpayer can rebut this presumption. Rule 142(a); 1 2 3 4 5 6 7 8 9 10 11 12 Welch v. Helvering, 290 U.S. 111, 115 (1933). 13 Petitioner does not contend that the burden of proof 14 15 should shift to respondent under Section 7491(a) and, if he had advanced this contention, it would lack 16 merit. 17 18 19 20 21 22 For the presumption of correctness to apply in cases involving receipt of unreported income, respondent ordinarily must provide some reasonable foundation connecting the taxpayer to the income- producing activity. See, e.g., Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir. 1993), 23 aff'g T.C. Memo 1991-636; Tucker v. Commissioner, 24 25 T.C. Memo 2014-51, at *12. Respondent satisfied this burden here by relying on petitioner's deemed 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 admissions. See Rule 90(c); Nis Family Trust v. Commissioner, 115 T.C. 523, 528 (2000). At trial petitioner did not dispute that he received either $21 of interest income or $8,931 of compensation for his software-related activity. His principal argument at trial was that he was actually employed by Google in 2012, and that he should have received a Form W-2, Wage and Tax Statement, from 9 Google, instead of receiving a Form 1099-MISC, 10 Miscellaneous Income, from Leapforce. On this 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 theory, his tax deficiency for 2012 would be substantially smaller because he would not be liable for self-employment tax. We reject petitioner's argument for several reasons. First, because he failed to respond to respondent's request for admissions, he is deemed to have admitted that he "received $8,931 of Nonemployee Compensation from Leapforce, Inc., in 2012." Second, he produced no evidence that he had any employment relationship with Google during 2012 or that his relationship with Leapforce, Inc., was other than that of an independent contractor. He worked part- time and did not report to work at an office; he testified that he generally worked from home or from other locations where an Internet connection was 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 available. He provided no evidence that payroll taxes were withheld from his compensation, as would have occurred if he were an employee. These facts strongly indicate that his status was that of an independent contractor. Petitioner put forth no evidence to show that he is not liable for self-employment tax of $1,907 as determined by the IRS. Section 1401 imposes a tax on net earnings derived by an 10 individual from carrying on a trade or business. 11 Petitioner's testimony established that he was 12 13 14 15 16 17 18 19 20 21 22 23 24 25 performing services for Leapforce with sufficient continuity and regularity to be considered engaged in a trade or business. We accordingly sustain the IRS's determination of self-employment tax as set forth in the notice of deficiency. Petitioner put forth no evidence to show that the IRS erred in reducing his EITC by $357. Section 32(a)(1) allows eligible taxpayers to claim this credit as a refundable credit. If a taxpayer's filing status was single and he had earned income exceeding $7,770 in 2012, his credit would be subject to a phase-out. Earned income for purposes of Section 32 includes a taxpayer's net earnings from self-employment. The unreported income from 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 Leapforce alone exceeded the phase-out threshold. 2 Petitioner put forth no evidence or argument to show 3 4 5 6 that the IRS erred in computing the phased-down amount of his EITC. Petitioner argued at trial that his income was subject to double taxation because both the 7 United States and Iran imposed taxes on it. But he 8 9 put forth no evidence showing that he paid taxes to the Iranian government or that such taxes, if paid, 10 would be creditable for U.S. income tax purposes. If he paid income taxes to a foreign government, he was required to report the income on his federal income tax return and claim a credit or deduction for the foreign taxes allegedly paid. He did not do so. To reflect the foregoing, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 1:33 p.m., the above- entitled matter was concluded.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com