Court Opinion

ID: 6344083
Source: CourtListenerOpinion
Date Created: 2022-05-26 14:01:57.130915+00
Date Added: 2024-06-11T08:46:47.182316
License: Public Domain

United States Tax Court
                                 Washington, DC 20217

QUINTIN K. KIILI,

                Petitioner

                v.                             Docket No. 16625-21.

COMMISSIONER OF INTERNAL
REVENUE,

                Respondent

                                      ORDER

      Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is

       ORDERED that the Clerk of the Court shall transmit herewith to petitioner
Quintin K. Kiili and to the Commissioner a copy of the pages of the transcript of the
trial in this case before the undersigned at the Honolulu, Hawaii, remote session
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, an appropriate
decision will be entered after the expiration of the 30-day period prescribed in Rule
231(a)(2)(B).

                             (Signed) Patrick J. Urda
                                      Judge

                                  Served 05/26/22
                                                                 3
1    Bench Opinion by Judge Patrick J Urda

2    April 14, 2022

3    Quintin K. Kiili v. Commissioner

4    Docket No. 16625-21

5              THE COURT:   The Court has decided to render the

6    following as its oral findings of fact and opinion in this

7    case.   This bench opinion is made pursuant to the

8    authority granted by section 7459(b) of the Internal

9    Revenue Code and Tax Court Rule 152, and it shall not be

10   relied upon as precedent in any other case.   Rule

11   references in this opinion are to the Tax Court Rules of

12   Practice and Procedure, and section references are to the

13   Internal Revenue Code, as amended and in effect at all

14   relevant times.

15             By notice of deficiency dated February 22, 2021,

16   the Internal Revenue Service (IRS) determined a deficiency

17   of $2,200 in petitioner Quintin K. Kiili's 2018 Federal

18   income tax.   The question before us is whether Mr. Kiili

19   correctly excluded Social Security benefits of $7,929 and

20   a state income tax refund of $1,372 from the taxable

21   income he reported on his 2018 tax return.    We conclude

22   that he did not and that the Commissioner's determination

23   of a deficiency was correct.

24             We held a trial for this case remotely via

25   Zoom.gov on April 11, 2022, at the Court's trial session
                                                                  4
1    for cases associated with Honolulu, Hawaii.      Mr. Kiili

2    represented himself, while Heather L. Wolfe represented

3    the Commissioner.   We find the following facts:

4                           FINDINGS OF FACT

5    I.    Mr. Kiili's 2018 Tax Reporting

6               On his 2018 federal income tax return, Mr. Kiili

7    reported wage income of $56,795 from his job working for

8    the state of Hawaii.   He also reported Social Security

9    benefits of $9,328, identifying $7,929 of that amount as

10   taxable.   He did not report any taxable refunds, credits,

11   or offsets of state and local income taxes.      Based on his

12   tax reporting (and his federal tax withholdings), Mr.

13   Kiili asserted that he was entitled to a refund of $368.

14   II.   IRS Examination and Notice of Deficiency

15              The IRS subsequently selected Mr. Kiili's 2018

16   tax return for examination.   Based on third-party

17   reporting from the Hawaii Department of Taxation and the

18   Social Security Administration, the IRS concluded that he

19   had incorrectly failed to report a state income tax refund

20   of $1,372 and Social Security retirement benefits of

21   $7,929.

22              Based on these revised income figures, the IRS

23   determined a deficiency of $2,200 and issued Mr. Kiili a

24   corresponding notice of deficiency.

25              Mr. Kiili timely petitioned this Court for
                                                                 5
1    redetermination.   At the time he filed his petition, Mr.

2    Kiili resided in Hawaii.

3                               OPINION

4    I.   Burden of Proof

5              The Commissioner's determinations in a notice of

6    deficiency are generally presumed correct, and the

7    taxpayer bears the burden of proving error in the

8    determinations.    See Rule 142(a); Welch v. Helvering, 290

9    U.S. 111, 115 (1933).    Mr. Kiili does not contend, and the

10   evidence does not establish, that the burden of proof

11   should shift to the Commissioner under section 7491(a).

12             The U.S. Court of Appeals for the Ninth Circuit,

13   to which an appeal in this case would lie absent a

14   stipulation to the contrary, see § 7482(b)(1)(A), (2), has

15   held that for the presumption of correctness to attach to

16   a notice of deficiency in unreported income cases, the

17   Commissioner must establish some evidentiary foundation

18   connecting the taxpayer with the income-producing

19   activity, see Weimerskirch v. Commissioner, 596 F.2d 358,

20   361–62 (9th Cir. 1979), rev'g 67 T.C. 672 (1977), or

21   demonstrating that the taxpayer actually received

22   unreported income, see Edwards v. Commissioner, 680 F.2d

23   1268, 1270–71 (9th Cir. 1982). If the Commissioner

24   introduces some evidence that the taxpayer received

25   unreported income, the burden shifts to the taxpayer, who
                                                              6
1    must establish by a preponderance of the evidence that the

2    unreported income adjustment was arbitrary or erroneous.

3    See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir.

4    1999), aff'g T.C. Memo. 1997-97.

5               In this case, there is no dispute that Mr. Kiili

6    received the unreported income at issue.      The IRS

7    determined that Mr. Kiili failed to report income from two

8    distinct sources: Social Security benefits and his state

9    tax refund.      The Commissioner has provided a certified

10   transcript stating that the IRS received a Form SSA-1099

11   benefits statement showing $18,656 of Social Security

12   payments made to Mr. Kiili in 2018 as well as a Form 1099-

13   G from the Hawaii Department of Taxation showing a $1,372

14   state income tax refund from 2017 paid to Mr. Kiili in

15   2018.   At trial, Mr. Kiili did not dispute that he

16   received the unreported Social Security benefits or state

17   income tax refund.      The Commissioner accordingly has

18   established the requisite minimal evidentiary foundation

19   linking Mr. Kiili and his activities to the unreported

20   income.   See Alonim v. Commissioner, T.C. Memo. 2010-190,

21   2010 WL 3397493, at *1.

22              Mr. Kiili accordingly has the burden of proof to

23   show that the Commissioner's determinations were arbitrary

24   or erroneous.

25   II.   Analysis
                                                                  7
1                Although Mr. Kiili acknowledged the receipt of

2    Social Security benefits in 2018, he took the position

3    that these benefits were not taxable based upon a letter

4    he received from the Social Security Administration, which

5    stated "[i]f you are at full retirement age or older you

6    may keep all of your benefits no matter how much you

7    earn."   Mr. Kiili drew the conclusion that, if he is

8    subject to tax on his Social Security benefits, then he

9    would not be keeping all the benefits.

10               Gross income generally means all income from

11   whatever source derived, including Social Security

12   benefits.   See §§ 61, 86(a).   Section 86(a) provides "that

13   gross income for a taxable year of any taxpayer includes

14   up to 85% of Social Security benefits received during the

15   taxable year." Brady v. Commissioner, T.C. Memo. 2013-1,

16   at *4.   Mr. Kiili received $18,656 in Social Security

17   benefits during 2018, and pursuant to section 86(a)(2)(B),

18   85% of the benefits were required to be included in his

19   gross income.    The notice of deficiency determined that

20   $15,858 (85% of the total amount of Social Security

21   benefits) should be included in his gross income, and Mr.

22   Kiili has not demonstrated that this calculation was in

23   error.

24               As to the other income adjustment in the notice

25   of deficiency, Mr. Kiili raises no issue suggesting that
                                                                 8
1    the state income tax refund he received in 2018 was not

2    taxable.   He is therefore taxable on that item as well, as

3    determined in the notice of deficiency.   See §§ 61,

4    111(a); Brashear v. Commissioner, T.C. Memo. 2012-136,

5    2012 WL 1698733 at *2.

6               We will accordingly sustain the deficiency

7    determinations stemming from the adjustments to Mr.

8    Kiili's gross income.

9    III. Conclusion

10              Based upon the evidence before the Court, we

11   conclude that the Commissioner did not err in determining

12   a deficiency of $2,200 in Mr. Kiili's 2018 taxes.      We

13   accordingly will enter a decision in favor of the

14   Commissioner.

15              This concludes the Court's oral Findings of Fact

16   and Opinion in this case.

17              (Whereupon, at 10:25 a.m., the above-entitled

18              matter was concluded.)

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