t c memo united_states tax_court john laszloffy petitioner v commissioner of internal revenue respondent docket no filed date john laszloffy pro_se erin k salel for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined the following deficiencies in and additions to petitioner’s federal_income_tax year deficiency sec_6651 sec_6651 sec_6654 additions to tax dollar_figure big_number big_number dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure the issues for decision are whether petitioner received taxable_income in and whether petitioner is liable for self-employment taxes for and whether petitioner is liable for additions to tax under sec_6651 for failure to timely file his and federal_income_tax returns whether petitioner is liable for additions to tax under sec_6651 for failure to timely pay his and federal income taxes whether petitioner is liable for additions to tax under sec_6654 for failure to make estimated_tax payments for and and whether the court should impose on petitioner a penalty under sec_6673 for advancing frivolous arguments findings_of_fact the facts have been deemed stipulated under rule f and are so found the stipulated facts and accompanying exhibit sec_1 unless otherwise indicated all section references are to the internal_revenue_code_of_1986 as in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure under rule f respondent moved the court to issue an order requiring petitioner to show cause why the facts and continued are incorporated herein by this reference petitioner resided in california at the time the petition was filed petitioner failed to file federal_income_tax returns for and during this period petitioner doing business as jl masonry completed construction and or masonry projects for hal hays construction inc striano construction co and joshua bailey construction the companies the companies filed forms 1099-misc miscellaneous income with respondent reporting the following amounts paid to petitioner hal hays striano joshua bailey year dollar_figure -0- big_number dollar_figure big_number dollar_figure -0- petitioner does not dispute receiving these payments pursuant to sec_6020 respondent executed substitutes for returns for the years at issue using the forms 1099-misc continued evidence set forth in respondent’s proposed stipulations of facts should not be accepted as established for the purposes of this case the court granted respondent’s motion and ordered petitioner to file a response in compliance with rule f although petitioner timely filed his response the court found it evasive and not fairly directed to respondent’s proposed stipulations of fact and as a result the court ordered that pars through of the proposed stipulations are deemed established for purposes of this case at trial petitioner invoked the fifth_amendment when respondent and the court questioned him about his income- producing activities during the years at issue filed by the companies respondent issued three separate notices of deficiency to petitioner in which he determined the above federal_income_tax deficiencies and additions to tax and petitioner filed a timely petition with the court challenging respondent’s determinations for all years petitioner has sent respondent volumes of correspondence throughout the proceeding therein petitioner asserts among other arguments that federal_law is inapplicable to him he is not a federal taxpayer obligated to pay federal_income_tax and the federal_income_tax system is purely voluntary petitioner also alleges that respondent acted fraudulently respondent advised petitioner that his arguments were frivolous and could result in a penalty under sec_6673 but petitioner continued to make the same arguments in his pretrial memorandum and at trial at trial the court warned petitioner that his arguments were frivolous and should not be placed in his posttrial brief however petitioner disregarded the court’s warning and asserted the same frivolous arguments this is not the first time petitioner has made frivolous arguments in this court in petitioner challenged the substitutes for returns meet the requirements of sec_6020 sec_6673 provides that the court may require a taxpayer to pay a penalty if the taxpayer’s position in the proceeding is frivolous or groundless respondent’s deficiency determinations for tax years and that resulted from petitioner’s failure_to_file federal_income_tax returns laszloffy v commissioner docket no at the calendar call preceding the trial date the court warned petitioner that he would be subject_to a penalty if he continued to advance frivolous arguments on date the court entered an order of dismissal for lack of prosecution because petitioner failed to appear at trial in laszloffy v commissioner tcmemo_2007_31 affd 297_fedappx_628 9th cir the court granted summary_judgment for respondent after petitioner challenged respondent’s appeals office’s determination to proceed with a proposed levy action against petitioner’s property related to tax years and as in the current case petitioner had failed to file federal_income_tax returns for the years at issue and was warned by the court that he was asserting frivolous arguments no penalty under sec_6673 was imposed in laszloffy v commissioner tcmemo_2007_31 affd 297_fedappx_628 9th cir petitioner argued among other things that he is not a taxpayer within the purview of the internal_revenue_code and is not located in any area of jurisdiction subject_to the united_states congress opinion i deficiency determinations a receipt of unreported taxable_income generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer has the burden of proving it wrong rule a 290_us_111 however in an unreported income case appealable to the court_of_appeals for the ninth circuit such as this one the presumption of correctness does not attach unless the commissioner first establishes some evidentiary foundation linking the taxpayer with the alleged income-producing activity see 596_f2d_358 9th cir revg 67_tc_672 54_tc_742 affd 445_f2d_985 10th cir rodriguez v commissioner tcmemo_2009_92 if respondent meets his burden of connecting petitioner with the income determined in the statutory_notice_of_deficiency the burden then shifts to petitioner to prove that respondent’s determination is erroneous see george v commissioner tcmemo_2002_163 respondent has established a sufficient evidentiary foundation linking petitioner with the income determined in the petitioner has neither claimed nor shown that he satisfied the requirements of sec_7491 to shift the burden_of_proof to respondent with regard to any factual issue affecting the deficiencies in his tax notices of deficiency ie the stipulations of fact establish that petitioner received the unreported income as determined in the notices of deficiency see mandeville v commissioner tcmemo_2007_332 finding taxpayer’s stipulation as to receipt of unreported income sufficient to attach presumption of correctness to notices of deficiency consequently respondent has met his burden of connecting petitioner with the income determined in the notices of deficiency and respondent’s deficiency determinations are presumed to be correct petitioner presented no evidence that respondent erroneously determined the amounts of taxable_income petitioner received in and when asked about his income-producing activities during the years at issue petitioner invoked the fifth_amendment accordingly we sustain respondent’s determinations regarding the amounts of taxable_income petitioner received in and b self-employment taxes sec_1401 imposes self-employment_tax on self-employment_income sec_1402 defines net_earnings_from_self-employment as the gross_income derived by an individual from the carrying on of any trade_or_business by such individual less allowable deductions attributable to such trade_or_business respondent determined that petitioner’s income during and is subject_to self-employment_tax petitioner presented no evidence that respondent’s determinations are erroneous petitioner did business as jl masonry and the income he received was classified as nonemployee compensation on the forms 1099-misc filed by the companies accordingly we sustain respondent’s determinations regarding petitioner’s liability for self-employment taxes for and ii additions to tax a burden_of_proof and production sec_7491 provides that the commissioner will bear the burden of production with respect to the liability of any individual for additions to tax the commissioner’s burden of production under sec_7491 is to produce evidence that it is appropriate to impose the relevant penalty addition_to_tax or additional_amount 118_tc_358 see also 116_tc_438 if a taxpayer files a petition alleging some error in the determination of an addition_to_tax or penalty the taxpayer’s challenge will succeed unless the commissioner produces evidence that the addition_to_tax or penalty is appropriate swain v commissioner supra pincite the commissioner however does not have the obligation to introduce evidence regarding reasonable_cause higbee v commissioner supra pincite b sec_6651 sec_6651 imposes an addition_to_tax for failure_to_file a return on the date prescribed determined with regard to any extension of time for filing unless the taxpayer can establish that such failure is due to reasonable_cause and not willful neglect petitioner failed to file federal_income_tax returns for the years at issue the court finds respondent has met his burden of production with regard to the additions to tax under sec_6651 petitioner has presented no evidence indicating his failures to file were due to reasonable_cause and not willful neglect or that respondent’s determinations are otherwise incorrect accordingly petitioner is liable for additions to tax under sec_6651 for and as respondent determined c sec_6651 sec_6651 imposes an addition_to_tax for failure to timely pay the amount shown as tax on a return unless the taxpayer can establish that such failure is due to reasonable_cause and not willful neglect the commissioner’s burden of production requires him to introduce evidence that the tax was shown on a federal_income_tax return 120_tc_163 when a taxpayer has not filed a return the sec_6651 addition_to_tax may not be imposed unless the secretary has prepared a substitute for return that meets the requirements of sec_6020 127_tc_200 affd 521_f3d_1289 10th cir petitioner failed to make income_tax payments for the years at issue respondent introduced into evidence valid substitutes for returns for the years at issue thereby satisfying his burden of production petitioner has presented no evidence indicating that his failures to pay were due to reasonable_cause and not willful neglect or that respondent’s determinations are otherwise incorrect we therefore hold that petitioner is liable for the additions to tax under sec_6651 for and as respondent determined d sec_6654 sec_6654 imposes an addition_to_tax in the case of any underpayment of estimated_tax by an individual a taxpayer has an obligation to pay estimated_tax for a particular year only if he has a required_annual_payment for that year sec_6654 a required_annual_payment generally is equal to the lesser_of percent of the tax_shown_on_the_return for the taxable_year or if no return is filed percent of the tax for such year or if the individual filed a return for the immediately preceding_taxable_year percent of the tax shown on that return sec_6654 wheeler v commissioner supra pincite heers v commissioner tcmemo_2007_10 respondent’s burden of production under sec_7491 requires him to produce evidence that petitioner had required annual payments for and under sec_6654 petitioner made no payments of estimated_tax for any of the years through the record establishes that petitioner had a required_annual_payment for each of those years petitioner did not file federal_income_tax returns for tax years through thus petitioner’s required_annual_payment for each year at issue was equal to percent of the tax for that year and respondent has carried his burden of production with respect to the sec_6654 additions to tax for the years at issue petitioner has not argued that any of the exceptions to the sec_6654 addition applies we therefore hold that petitioner is liable for the additions to tax under sec_6654 for and as respondent determined iii penalty under sec_6673 respondent moved the court to impose a penalty on petitioner under sec_6673 sec_6673 authorizes the court to impose a penalty not to exceed dollar_figure if the taxpayer took frivolous positions in the proceeding or instituted the proceeding primarily for delay a position is frivolous if it is contrary to established law and unsupported by a reasoned colorable argument for change in the law 791_f2d_68 7th cir this court has ruled that arguments such as those petitioner asserts here are frivolous and wholly without merit see williams v commissioner tcmemo_1999_277 imposing sec_6673 penalty for tax-protester arguments in addition petitioner has advanced frivolous arguments before the court on two prior occasions sec_6673 was intended to apply to situations where a taxpayer repeatedly brings the same appeal after having been informed that his basis is groundless 73_tc_806 in laszloffy v commissioner docket no the court warned petitioner that his arguments were frivolous and would result in the imposition of a penalty if he continued to raise them in laszloffy v commissioner tcmemo_2007_31 the court again advised petitioner that many of his arguments were frivolous accordingly we shall grant respondent’s motion and require petitioner to pay a penalty of dollar_figure to the united_states pursuant to sec_6673 we also warn petitioner that we will consider imposing a larger penalty if he returns to the court and advances frivolous or groundless arguments in the future to reflect the foregoing an appropriate order and decision will be entered


t c memo united_states tax_court cliff connors petitioner v commissioner of internal revenue respondent docket no filed date william s neal for petitioner theresa g mcqueeney for respondent memorandum findings_of_fact and opinion cohen judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax and additions to tax of dollar_figure dollar_figure and dollar_figure under sec_6651 and and respectively for respondent conceded the sec_6654 addition_to_tax in respondent’s objection to petitioner’s motion to amend petition filed on date after concessions by the parties the issues for decision are whether payments made to petitioner pursuant to a long- term disability_income settlement by connecticut general life_insurance co connecticut general are taxable gross_income to petitioner in whether citibank interest_income of dollar_figure attributable to the quadrino schwartz p c quadrino schwartz escrow account and dollar_figure of interest_income from a u s savings bond are taxable to petitioner in whether petitioner is entitled to certain credits exemptions or deductions in whether petitioner is liable for the additions to tax under sec_6651 and and whether petitioner’s proper filing_status for is married_filing_separately unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and the stipulated facts are incorporated in our findings by this reference petitioner resided in woodhaven new york at the time that he filed his petition on date petitioner was injured on the job while employed as a salesman for american cablevision of queens american a subsidiary of american television communications corp atc now known as time warner petitioner has not returned to work since the time of the injury american determined that petitioner was totally disabled as a result of the injury petitioner was covered at the time by a disability insurance plan issued by connecticut general a subsidiary of cigna group_insurance cigna under the summary_plan_description it is stated that the cost of the plan is paid_by the sponsor the sponsor as designated in the summary_plan_description was atc the group long term disability policy policy no effective date provided that in the event of total disability the insured would qualify for the monthly benefit the monthly benefit for any month was percent of the insured’s monthly basic earnings at the time that he became totally disabled less any applicable adjustments pursuant to this policy connecticut general paid disability benefits to petitioner from date through date on or about date connecticut general ceased paying disability benefits to petitioner petitioner retained quadrino schwartz on a contingent_fee basis to pursue litigation against connecticut general on date quadrino schwartz filed a complaint on behalf of petitioner against connecticut general in the u s district_court southern district of new york docket no cv jsm seeking declaratory relief that petitioner was disabled and covered under the terms of the policy payment of past due benefits and payment of continuing benefits petitioner and connecticut general settled the case in date the settlement agreement signed by petitioner provided that connecticut general-- shall issue a settlement check in the amount of dollar_figure payable to quadrino schwartz as attorneys for cliff connors for all of the back benefits which are payable under the terms of the policy and interest on all of the back benefits in the amount of percent compounded annually additionally the settlement provided that connecticut general shall pay future_benefits to cliff connors as per the terms of the policy and issue monthly checks payable to ‘quadrino schwartz as attorneys for cliff connors ’ connecticut general issued a settlement check to quadrino schwartz as attorneys for cliff connors in the amount of dollar_figure it also issued checks to cliff connors c o quadrino schwartz for june and july disability payments quadrino schwartz made payments to petitioner out of the escrow account maintained for petitioner as follows dollar_figure on date dollar_figure on date reflecting the june and july monthly benefit payments and dollar_figure on date additionally four monthly benefit payments of dollar_figure each for august through date were received on behalf of petitioner and mailed directly to him connecticut general issued a form_w-2 wage and tax statement to petitioner in reflecting the dollar_figure payment for past due benefits and dollar_figure of ongoing monthly benefit payments of dollar_figure from june through date the form_w-2 did not reflect any federal_income_tax withholding additionally during attorney’s fees were paid out of the escrow account to quadrino schwartz in the amount of dollar_figure on date to william neal neal counsel of record in this case in the amount of dollar_figure on date and to advance settlement funding in the amount of dollar_figure on date a dollar_figure payment was made to quadrino schwartz on date as well on date quadrino schwartz filed a complaint in the supreme court of the state of new york county of nassau against petitioner quadrino schwartz claimed that despite the terms of the retainer agreement between quadrino schwartz and petitioner petitioner refused to honor the terms of the agreement and refused to pay quadrino schwartz percent of the recovery that petitioner received from connecticut general quadrino schwartz asserted a lien of percent against the recovery paid_by connecticut general asserted a lien against every monthly disability benefit payment paid_by connecticut general to petitioner and maintained that amount in the escrow account until resolution of the dispute quadrino schwartz maintained the escrow account at citibank in the escrow account schedule reflects that interest of dollar_figure was earned on the account from date through date petitioner also maintained an individual bank account at citibank petitioner was married to lucy lejin qi connors mrs connors on date neither petitioner nor mrs connors filed a federal_income_tax return for or paid any taxes for that year a substitute return under sec_6020 was prepared by the internal_revenue_service for that year on date petitioner was a cash_basis taxpayer in procedural matters respondent sent a notice_of_deficiency for to petitioner on date petitioner filed the petition in this case on date the petition placed in issue only the insurance proceeds alleging the determination of the tax set forth in the said notice_of_deficiency is based upon the following errors a that the disability_income payments under an insurance_policy are taxable the facts upon which the petitioner relies as the basis of petitioner’s case are as follows taxes are paid_by the insurance_company as provided by the insurance_policy no other errors were pleaded at all times during this case petitioner was represented by neal by notice served date this case was set for trial in new york city on date attached to the notice was the court’s standing_pretrial_order which provided in part continuances will be granted only in exceptional circumstances see rule tax_court rules_of_practice and procedure even joint motions for continuance will not be routinely granted ordered that all facts shall be stipulated to the maximum extent possible all documentary and written evidence shall be marked and stipulated in accordance with rule b unless the evidence is to be used solely to impeach the credibility of a witness objections may be preserved in the stipulation if a complete stipulation of facts is not ready for submission at the commencement of the trial or at such other time ordered by the court and if the court determines that this is the result of either party’s failure to fully cooperate in the preparation thereof the court may order sanctions against the uncooperative party any documents or materials which a party expects to utilize in the event of trial but which are not stipulated shall be identified in writing and exchanged by the parties at least days before the first day of the trial session the court may refuse to receive in evidence any document or material not so stipulated or exchanged unless otherwise agreed by the parties or allowed by the court for good cause shown it is further ordered that all parties shall be prepared for trial at any time during the term of the trial session unless a specific date has been previously set by the court on date respondent’s requests for admission were served and filed and because petitioner failed to respond the facts therein were deemed admitted pursuant to rule on date respondent filed a motion to compel production of documents and a motion to compel responses to respondent’s interrogatories such requests had been served on petitioner on date and petitioner though represented by neal had not produced any documents or answered the interrogatories by order of the court dated date respondent’s motions were granted in that petitioner was ordered to produce the requested documents and to answer the interrogatories on or before date on date neal filed a motion to continue alleging that petitioner was in china and could not return for the trial respondent objected to the motion to continue on the grounds that-- with regard to the date discovery deadlines it is respondent’s understanding that as early as the filing of the petition in this case petitioner has had access to cigna who is the parent company for the payment made by connecticut general despite such access petitioner has provided no documentation other than the initial disability insurance_policy in support of the payment of dollar_figure at issue petitioner has provided no reasonable explanation regarding why he was unable to provide a copy of the settlement and or the underlying terms and or any documentation from the payer connecticut general or cigna to support the requested continuance petitioner recently traveled to china with no regard for the date u s tax_court calendar date it is respondent’s understanding that petitioner did not leave until long after the date notice setting case for trial was issued in support of petitioner’s continuance request petitioner stated that he is infirm and permanently disabled such health condition is not recently contracted and did not deter the petitioner from petitioning the tax_court petitioner makes no claim that his health condition will be improved at some later date as such a continuance should not be granted based on petitioner’s health condition further petitioner’s ability to complete a recent to hour flight to china despite his health condition supports the determination that petitioner could have appeared in tax_court on date had he not left the country lastly petitioner should have considered the financial impact of his travel to china and his ability to return to the u s for the date calendar prior to his departure petitioner’s motion to continue was denied because petitioner was already in default of discovery obligations and because the court was not persuaded that petitioner could not or should not be present at trial moreover the documents that petitioner and neal failed to produce would be the relevant evidence as to the taxability of the insurance proceeds in dispute when the case was called for trial neal renewed the motion for continuance stating that petitioner was still out of the country neal asserted that petitioner had left for china before the notice setting trial was served although mrs connors testified she did not indicate when petitioner left for china or when he was expected to return the renewed motion was denied during trial neal raised for the first time the claim that petitioner was entitled to certain deductions exemptions and credits the only evidence presented at trial was the testimony of mrs connors to say that she was married to petitioner which was already stipulated that they had a daughter together and that petitioner had two sons mrs connors testified that dollar_figure was paid_by petitioner on behalf of his two sons and that depending on circumstances petitioner’s sons were with them once a week at the conclusion of the trial petitioner was directed on the record and by order to show cause to make an offer of proof that would justify reopening the record as to evidence regarding petitioner’s liability for penalties in the event the disability payments were taxable the court left open the possibility of petitioner’s testimony if he returned from china neal was told you’re going to have to make a specific statement as to when mr connors will be available in new york or washington to testify he can give you an affidavit about what he wants to testify about and respondent can decide whether they want to cross-examine he was also informed that any affidavits provided as part of the offer of proof regarding petitioner’s reliance on tax_advice from third parties and professionals should be very specific and detailed h e is going to have to show that he provided specific information to specific professionals about the facts of the situation not just that he had an impression based on what occurred before that petitioner was also directed that any motion for leave to amend the petition regarding additional issues that petitioner wanted to raise that had not yet been pleaded such as deductions be filed by date neal was told at trial that mrs connors’s testimony needed to be substantiated by documents showing what petitioner paid for the support of his sons what the custody arrangements were in and whether there were any agreements regarding support he was told that he also needed to include in the offer of proof applicable caselaw to support the claims for deductions exemptions and credits petitioner’s motion to amend the petition and petitioner’s offer of proof were filed on date the proposed amended petition failed to identify any specific deductions to which petitioner would be entitled failed to contain clear and concise assignments of error on the part of respondent or any clear and concise statements of fact on which petitioner based an assignment of error and failed to allege any specific facts with respect to the additions to tax the proposed amended petition disputed the taxability of the insurance benefits and stated the facts upon which the petitioner relies as the basis of petitioner’s case are as follows taxes are paid_by the insurance_company as provided by the insurance_policy he actually received a reduced_amount of funds in from his federal court case and lawyers therein withheld most of said funds pending outcome of the other case on attorney fees for the federal court case further he did indeed pay premiums for health and disability insurance coverage through his employer time warner and that if any deficiency is sustained against him then he is entitled to such exemptions credits and deductions including earned_income_credit as allowed for a married man with three children and others that apply to his circumstances there were no documents records or affidavits attached to the offer of proof to substantiate any of the statements made therein additionally petitioner never sought to be relieved of the deemed admissions in this case the deemed admissions include that petitioner paid no premiums toward his insurance_policy that connecticut general’ sec_2002 payment of dollar_figure to petitioner was in satisfaction of the insurance company’s requirement to pay to petitioner percent of his salary as a disability payment that the form_w-2 for dollar_figure included no federal_income_tax withholding that petitioner earned interest_income of dollar_figure and dollar_figure from citibank in on the escrow account and a u s savings bond respectively that petitioner’s failure_to_file timely the tax_return was not due to reasonable_cause and was due to willful neglect and that the sec_6651 and additions to tax are applicable for respondent objected to the motion to amend the petition and to reopening the record by order dated date the court concluded that nothing would be gained by reopening the record for further evidence and that justice does not require that petitioner be permitted to amend the petition this case was submitted on the evidentiary record as of date on review of the entire record we conclude that petitioner’s testimony would not affect the result in this case opinion under sec_7491 the burden_of_proof on any factual issue relevant to ascertaining the taxpayer’s tax_liability shifts from the taxpayer to the commissioner if the taxpayer produces credible_evidence with respect to such factual issue sec_7491 however sec_7491 applies with respect to an issue only if the taxpayer has complied with the requirements under the code to substantiate any item has maintained all records required under the code and has cooperated with reasonable requests by the commissioner for witnesses information documents meetings and interviews see sec_7491 and b under sec_7491 respondent has the burden of production with respect to the liability of any individual for any penalty or addition_to_tax petitioner failed to maintain adequate_records or to produce credible_evidence therefore the burden_of_proof has not shifted to respondent under sec_7491 in regard to the additions to tax petitioner has admitted that no tax_return was filed by petitioner for and that no taxes were paid respondent has shown that the substitute return filed on behalf of petitioner for met the requirements of sec_6020 see infra p therefore respondent has met the burden of production under sec_7491 see 116_tc_438 disability benefit payments the benefits in dispute in this case were paid pursuant to a policy obtained through petitioner’s employer sec_61 includes in gross_income all income from whatever source derived unless otherwise provided sec_105 provides that amounts received by an employee through accident_or_health_insurance are includable in the gross_income of the employee to the extent such amounts are attributable to contributions by the employer that were not includable in the gross_income of the employee or are paid_by the employer therefore benefits received under a plan are includable in petitioner's income unless the contributions were includable in petitioner's gross_income 120_tc_1 affd 85_fedappx_875 3d cir gross_income does not include amounts received through accident_or_health_insurance for personal injuries or sickness to the extent such amounts are attributable to contributions by the employer that were includable in the gross_income of the employee or are paid for by the employee see sec_104 therefore petitioner may exclude the amounts he received if he paid premiums for the disability plan or if his employer paid premiums and the premiums were includable in his gross_income see tuka v commissioner supra pincite miley v commissioner tcmemo_2002_236 in tuka the court stated although sec_104 is not explicit on the subject it clearly contemplates that exemption of benefits depends on whether contributions to an accident_and_health_insurance plan involve after-tax_dollars indeed if an employee is to exclude disability benefits attributable to employer contributions those contributions must have been includable in the employee's gross_income tuka v commissioner supra pincite if an employer is the sole purchaser of a policy of accident_or_health_insurance for its employees on either a group or individual basis the exclusion provided under sec_104 does not apply to any amounts received by his employees through such fund or insurance sec_1_104-1 income_tax regs petitioner argues that the benefits he received are not includable in his income because he paid the premiums for the policy the policy specifically states that the plan was paid for by atc the parent of petitioner’s employer petitioner does not dispute the assertion by connecticut general relied on by respondent in a stipulated exhibit that the premiums_paid were not included in his taxable_income petitioner has presented no evidence reason or authority to apply the exception under sec_104 additionally a fact deemed admitted under rule is that petitioner did not pay premiums toward his insurance_policy therefore the disability payments made by connecticut general to petitioner are not excluded from petitioner’s gross_income by sec_104 see tuka v commissioner supra pincite sec_1_104-1 income_tax regs see also emerson v commissioner tcmemo_2000_137 rabideau v commissioner tcmemo_1997_230 in the alternative petitioner argues that the exception under sec_105 applies because the amounts he received were based on the type and severity of his injuries suffered by himself and not because of his position salary investment or other extraneous factors related to his company or employment sec_105 provides an exception to includability for amounts received by an employee through accident_or_health_insurance to the extent attributable to employer contributions that were not includable in an employee’s gross_income under sec_105 amounts attributable to employer contributions are excluded from gross_income to the extent such amounts constitute payment for the permanent loss or loss of use of a member or function of the body or the permanent disfigurement of the taxpayer and are computed with reference to the nature of the injury without regard to the period the employee is absent from work under the terms of the policy long-term disability benefits were based on petitioner’s monthly basic earnings at the time that he became totally disabled the benefit payments that petitioner received at the time of his disability as well as the payments made pursuant to the settlement agreement were based on the terms of the policy and the coverage it provided and not by reference to the nature of petitioner’s injury petitioner has offered no evidence to the contrary additionally a fact deemed admitted under rule is that connecticut general’s payment of dollar_figure to petitioner was in satisfaction of the insurance company’s requirement to pay percent of his salary as a disability payment therefore the exception under sec_105 is not applicable finally on brief petitioner argues that on settlement of that case he did not receive all that money oh no he received much much less money from that case he argues that quadrino schwartz retained the larger portion of the lawsuit settlement and denied him access to most of his funds additionally petitioner argues that the dollar_figure payment made to petitioner on date from the quadrino schwartz escrow account should not be taxable to him in because he is a cash_basis taxpayer as a general_rule when a taxpayer’s litigation recovery constitutes income the taxpayer is taxable on the contingent_fee portion of the litigation recovery 543_us_426 sec_212 allows a deduction for all of the ordinary and necessary expenses paid_or_incurred during the taxable_year for the production_or_collection_of_income sec_212 the attorney’s fees paid_by petitioner would be allowed as a itemized_deduction under this section the deduction would however be subject_to the 2-percent floor under sec_67 because it does not fall under any of the sec_67 exclusions respondent has conceded that petitioner may deduct his attorney’s fees of dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure incurred in as a miscellaneous itemized_deduction for that year under sec_67 subject_to the 2-percent floor see commissioner v banks supra pincite in regard to the insurance benefit paid to petitioner in sec_451 provides that the amount of any item_of_gross_income shall be included in the gross_income for the taxable_year in which received by the taxpayer unless under the method_of_accounting used in computing taxable_income such amount is to be properly accounted for in a different period income is constructively received by a taxpayer in the taxable_year in which such income is credited to the taxpayer’s account is set apart for the taxpayer or is otherwise made available so that the taxpayer could have drawn upon it during the taxable_year if notice of intention to withdraw had been given income is not constructively received if the taxpayer’s control of its receipt is subject_to substantial limitations or restrictions sec_1_451-2 income_tax regs see 103_tc_634 affd 89_f3d_856 11th cir generally receipt of payment by an agent is constructive receipt by the principal md cas co v united_states 251_us_342 42_tc_628 see also burkes v commissioner tcmemo_1998_61 in gale v commissioner tcmemo_2002_54 funds from a lawsuit against united ready mixed were paid at the taxpayer’s direction under the terms of a settlement agreement signed by the taxpayer to the taxpayer’s attorney to be deposited into an attorney- client trust account the funds were placed into the trust account pending resolution of a dispute about attorney’s fees however the court stated in gale there is no need to consider the doctrine_of constructive receipt because petitioner did not delay united ready mixed's paymentdollar_figure as between petitioner and united ready mixed the settlement amount was fully paid in united ready mixed retained no interest in the funds after they were paid at petitioner's direction pursuant to the terms of the settlement agreement to petitioner's attorney any restriction placed on the use of the settlement proceeds after payment by united ready mixed whether the restriction was placed on the funds voluntarily by petitioner or through acts by petitioner's creditors does not delay petitioner's receipt of the income for income_tax purposes gale v commissioner supra citations omitted constructive receipt as defined in sec_1_451-2 income_tax regs is a legal term of art that applies when payment has not been effected because of the payee's postponing payment the term constructive receipt could also be used in its vernacular sense for any payment not physically received by the taxpayer a taxpayer has constructive receipt in its vernacular sense of funds paid directly to the taxpayer's agents or creditors the legal doctrine_of constructive receipt defined in sec_1_451-2 income_tax regs however does not apply to completed payments received by a payee's agents or creditors we have used the term taxable receipt to distinguish between physical receipt and nonphysical receipt that the law treats as received for tax purposes connecticut general placed no restrictions on petitioner's use of the funds and the payment was made to petitioner's attorneys on petitioner’s behalf at petitioner's direction pursuant to the settlement agreement the supreme court has observed that client and lawyer are in a quintessential principal-agent relationship and that it is appropriate to treat the full amount of the recovery as income to the principal commissioner v banks supra pincite petitioner's counsel was acting as petitioner's agent and petitioner's creditor in receiving and holding the funds settlement proceeds paid_by connecticut general in constitute income to petitioner in petitioner thus had taxable receipt of the income in see gale v commissioner supra see also sullivan v commissioner tcmemo_1999_341 citibank interest_income gross_income means all income from whatever source derived sec_61 under sec_61 interest is includable in gross_income petitioner objected to respondent’s assertion that he received taxable interest_income of dollar_figure in on the interest-bearing escrow account with quadrino schwartz the stipulated schedule of the escrow balance shows that interest of dollar_figure was earned on the account and was reflected in the date payment made to petitioner respondent asserts that dollar_figure of that amount is attributable to petitioner has failed to present any reasonable dispute with respect to respondent’s assertion in these circumstances respondent was entitled to rely on third-party information see sec_6201 117_f3d_785 5th cir silver v commissioner tcmemo_2005_281 petitioner also objected to respondent’s assertion that petitioner received dollar_figure of taxable interest_income for savings bonds in the earned interest of dollar_figure and dollar_figure in was deemed admitted pursuant to rule when petitioner failed to respond to the request for admissions therefore petitioner has taxable interest_income of dollar_figure for credits exemptions and deductions petitioner argues that he is entitled to dependency_exemptions for his wife and three children under sec_151 and sec_152 and to the child_tax_credit under sec_24 petitioner belatedly made these claims and was afforded the opportunity to file a motion to amend the petition however the proposed amended petition that accompanied his motion failed to identify any specific deductions or credits to which petitioner would be entitled mrs connors testified that petitioner had three children one of whom was in china with him her testimony is insufficient to show that petitioner was entitled to a dependency_exemption for any of his children under sec_151 and sec_152 to the child_tax_credit under sec_24 or to any other credits for neither at trial nor in the offer of proof did petitioner present sufficient information concerning custody of his children or respective contributions to their support additionally although mrs connors testified that she did not work in her testimony as well as petitioner’s failure to provide any information as to her support is insufficient to show that petitioner would be entitled to a dependency_exemption for her additions to tax respondent determined an addition_to_tax under sec_6651 for the year in issue sec_6651 provides for an addition_to_tax of percent of the tax required to be shown on the return for each month or fraction thereof for which there is a failure_to_file not to exceed percent the addition_to_tax for failure_to_file is not imposed if it is shown that the failure_to_file did not result from willful neglect and was due to reasonable_cause see 469_us_241 to prove reasonable_cause a taxpayer must show that he or she exercised ordinary business care and prudence but nevertheless could not file the return when it was due see 92_tc_899 sec_301 c proced admin regs because petitioner failed to present a reasonable explanation for his failure_to_file and failed to allege any specific facts with respect to the addition_to_tax and because liability for the addition_to_tax was deemed admitted pursuant to rule respondent's determination with respect to the addition_to_tax under sec_6651 is sustained additionally respondent determined an addition_to_tax under sec_6651 for failure_to_pay_tax sec_6651 provides for an addition_to_tax of percent per month up to percent for failure to pay the amount shown on a return this addition_to_tax however applies only in the case where a return has been filed see spurlock v commissioner tcmemo_2003_ see also burr v commissioner tcmemo_2002_69 affd 56_fedappx_150 4th cir heisey v commissioner tcmemo_2002_41 affd 59_fedappx_233 9th cir under sec_6651 a return that the secretary prepared under sec_6020 is treated as the return filed by the taxpayer for purposes of determining the amount of the addition under sec_6651 for these purposes a sec_6020 return in the context of sec_6651 and g must be subscribed it must contain sufficient information from which to compute the taxpayer’s tax_liability and the return form and any attachments must purport to be a ‘return’ spurlock v commissioner supra see also 120_tc_163 respondent has satisfied the requirements under sec_6651 g and b because petitioner has failed to allege any specific facts with respect to the addition_to_tax and because liability for the addition_to_tax was deemed admitted pursuant to rule the addition_to_tax under sec_6651 is sustained filing_status sec_1 provides that every married individual who does not make a single return jointly with his spouse has a filing_status of married_filing_separately petitioner and mrs connors did not file a joint_return for and there is no reliable evidence that they ever intended to file a joint_return for therefore petitioner’s filing_status for is married_filing_separately we have considered the arguments of the parties that were not specifically addressed in this opinion those arguments are either without merit or irrelevant to our decision to reflect respondent’s concessions decision will be entered under rule


significant index no department of the treasury internal_revenue_service washington d c tax exempt ang government entities division apr re substitute mortality_table ruling taxpayer hourly plan salaried plan populations for which substitute mortality tables are requested hourly plan - male annuitants hourly plan female annuitants hourly plan - male nonannuitants hourly plan - female nonannuitants dear this letter is to inform you that your request to use substitute mortality tables for making computations under sec_430 of the internal_revenue_code the code for the hourly plan has been granted with respect to the populations specified in this letter effective for a period of plan years beginning with the plan_year commencing your request has been granted in accordance with sec_430 january of the code and sec_303 of the employee_retirement_income_security_act_of_1974 i this approval applies to the following specific populations e o hourly plan - male annuitants including disabled participants hourly plan - female annuitants including disabled participants hourly plan - male nonannuitants including disabled participants hourly pian - female nonannuitants including disabled participants _ the taxpayer is also requesting approval for substitute mortality tables for the salaried plan’s male and female annuitant populations which will be addressed in a separate ruling letter based on the information provided by the taxpayer the following population in the taxpayer's controlled_group does not have credible mortality experience and therefore the standard mortality tables will be used for calculations under sec_430 of the code e salaried plan - male and female nonannuitants in granting this approval we have only considered whether the substitute mortality rates were developed in accordance with sec_1_430_h_3_-2 of the treasury regulations regulations and revproc_2017_55 accordingly we are not expressing any opinion as to the accuracy or acceptability of any calculations or other material submitted with your request permission is hereby granted to use the substitute mortality rates shown in the table below for the hourly plan approved for use beginning with the plan_year commencing january substitute mortality tables base_year male female male female o annuitants annuitants nonannuitants nonannuitants v r o o f a n o f o j o t male female male - female annuitants annuitants nonannuitants nonannuitants male female male female annuitants annuitants nonannuitants nonannuitants male female male female annuitants annuitants nonannuitants nonannuitants male female male female annuitants annuitants nonannuitants nonannuitants age the above rates were developed based on an experience study period from january the rates were calculated through december ’ with a base_year of by adjusting the applicable standard mortality tables in sec_1_430_h_3_-1 of the regulations using the mortality ratio and credibility weighting factor determined by aggregating male and female experience as shown in the table below population mortality ratio credibility eaclor hourly plan - annuitants hourly plan - nonannuitants the internal_revenue_service has reviewed the substitute mortality rates and supporting information and has determined that based on the information submitted the rates were developed in accordance with sec_1_430_h_3_-2 of the regulations and revproc_2017_55 the above rates must be applied on a generational basis as provided in sec_1_430_h_3_-2 of the regulations your attention is called to sec_430 of the code and sec_1 h - d of the regulations which describe the circumstances in which the use of the substitute mortality_table will terminate before the end of the 10-year period described above in general the substitute mortality tables can no longer be used as of the earliest of - for a plan using a substitute mortality_table for only one gender the first plan_year for which there is full or partial credible mortality information with respect to the other gender that had lacked credible mortality information unless an approved substitute mortality_table is used for that gender the first plan_year in which the plan fails to satisfy the requirements of sec_1_430_h_3_-2 of the regulations regarding the requirement that other plans and populations in the controlled_group must also use substitute mortality tables unless it can be demonstrated that they do not have credible mortality information taking into account the transition_period for newly affiliated companies in sec_1_430_h_3_-2 of the regulations the second plan_year following the plan_year for which there is a significant change in individuals covered by the plan as described in sec_1_430_h_3_-2 of the regulations the plan_year following the plan_year in which a substitute mortality_table used ' for a plan population is no longer accurately predictive of future mortality of that population as determined by the commissioner or as certified by the plan’s actuary to the satisfaction of the commissioner or the date specified in guidance published in the internal_revenue_bulletin pursuant to a replacement of mortality tables specified under section h a of the code and sec_1_430_h_3_-1 of the regulations other than annual updates to the static mortality tables issued pursuant to sec_1_430_h_3_-1 of the regulations or changes to the mortality improvement rates pursuant to sec_1_430_h_3_-1 of the regulations in particular sec_1_430_h_3_-2 of the regulations provides that the use of substitute mortality tables must be discontinued after a significant change in coverage unless the plan's actuary certifies in writing to the satisfaction of the commissioner that the substitute mortality tables used for the population continue to be accurately predictive of future mortality of the population taking into account the effect of the change in the population for this purpose a significant change in coverage occurs if the number of individuals covered by the substitute mortality_table for a plan_year is less than percent or more than percent of either the average number of individuals in that population over the years covered by the experience study on which the substitute mortality_table is based or the number of individuals covered by the substitute mortality_table in a plan_year for which a certification described in sec_1_430_h_3_-2 of the regulations was made this ruling is directed only to the taxpayer that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent when filing form_5500 for the plan years for which the substitute mortality tables are used please note the information that is required to be attached to schedule sb actuarial information in accordance with the instructions to that form we have not sent a copy of this letter to your authorized representatives pursuant to a power_of_attorney form on file in this office we have sent a copy of this letter to the manager ep classification in columbus ohio and to the manager ep compliance unit in chicago illinois if you have any questions concerning this matter please contact id jat sincerely david m ziegler manager employee_plans actuarial group cc