Court Opinion

ID: 4336408
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:48:59.602648+00
Date Added: 2024-06-11T14:46:50.512839
License: Public Domain

T.C. Memo. 2007-82

                      UNITED STATES TAX COURT

                  STEVEN R. OLMOS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 2232-04.                 Filed April 9, 2007.

     George E. Harp, for petitioner.

     Alisha M. Harper, for respondent.

              MEMORANDUM FINDINGS OF FACT AND OPINION

     HAINES, Judge:   Respondent determined a deficiency in

petitioner’s 2001 Federal income tax of $43,886 and additions to

tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754,

respectively.1   The issues for decision are:   (1) Whether

     1
         Unless otherwise indicated, all section references are to
                                                    (continued...)
                               - 2 -

petitioner received unreported income in the form of interest and

medical and healthcare payments in 2001; (2) whether petitioner

is liable for self-employment tax for 2001; (3) whether

petitioner is liable for an addition to tax under section

6651(a)(1) for failing to file his 2001 tax return; (4) whether

petitioner is liable for an addition to tax under section 6654(a)

for failing to make estimated tax payments with respect to his

2001 tax liability; and (5) whether petitioner is liable for a

penalty under section 6673(a)(1).

                         FINDINGS OF FACT

     At the time he filed his petition and amended petition,

petitioner resided in Niles, Ohio.

     During 2001, petitioner was a dentist with an office in La

Mesa, California.   Petitioner received medical and healthcare

payments from insurance companies and other entities for services

rendered to his patients.   The insurance companies and other

entities issued petitioner Forms 1099-MISC, Miscellaneous Income,

reflecting the following payments made during 2001:

     1
      (...continued)
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
                                - 3 -

               Payor                     Payment(s)
    Aramco Services Co.                    $1,449
    Blue Cross of California               37,502
    Continental Casualty Co.                2,245
    Delta Dental Plan of                    2,034
      California
    Great-West Life & Annuity               2,360
      Ins. Co.
    Interinsurance Exchange                 1,104
    Nationwide Mutual Ins. Co.                951
    Niagra Fire Ins. Co.                    1,695
    Republic Indemnity Co.                  2,111
    San Diego Elec. Health &                  720
      Welfare Trust
    State Comp. Ins. Fund                   2,428
    Tristar Risk Management                 1,823
    Truck Ins. Exchange                    15,740
    United Healthcare Ins. Co.              4,002
      Total                                76,164

During 2001, petitioner also received and cashed checks totaling

$2,279 from Kaiser Permanente Medical Care Program and checks

totaling $12,827 from State Farm Mutual Automobile Insurance

Company.

     Despite receiving medical and healthcare payments totaling

at least $91,270 in 2001, petitioner did not make estimated tax

payments and did not file a Federal income tax return.
                               - 4 -

     On October 31, 2003, respondent issued petitioner a notice

of deficiency for 2001.   Based on information received from

third-party payors, respondent determined petitioner received

interest income of $72 from Wells Fargo and self-employment

income of $132,242 from medical and healthcare payments.2    In

addition to the medical and healthcare payments reflected above,

respondent determined petitioner also received medical and

healthcare payments from the following sources:

                  Payor                   Payment(s)
    Aetna, Inc.                              $5,789
    Aetna Life Ins. Co.                      11,196
    Best Life Assurance                       1,000
    Calfarm Ins. Co.                          4,218
    Federal Ins. Co.                          1,300
    Intercare Ins. Services                   3,763
    Kyocera International, Inc.               4,558
    Peoria Unified School                     1,975
      District
    Twin City Fire Ins. Co.                   5,404
         Total                               39,203

After allowing petitioner a standard deduction, a personal

exemption, and an adjustment for self-employment tax, respondent

determined petitioner’s 2001 taxable income was $118,108.

     2
        These medical and healthcare payments included $1,611
from Metropolitan Life Ins. Co. On brief, respondent conceded
petitioner did not receive medical and healthcare payments from
Metropolitan Life Ins. Co.
                                 - 5 -

Respondent determined petitioner had a deficiency in tax of

$43,866 for 2001, which included self-employment tax of $13,511.

Respondent also determined petitioner was liable for additions to

tax under sections 6651(a)(1) and 6654(a) of $10,072 and $1,754,

respectively.

     On February 5, 2004, the Court filed petitioner’s imperfect

petition.   By order dated February 9, 2004, the Court ordered

petitioner to file a proper amended petition and pay the filing

fee on or before March 25, 2004.    The Court received petitioner’s

filing fee on March 29, 2004, but did not receive a proper

amended petition.   By order dated June 2, 2004, the Court

extended the time to file a proper amended petition to June 30,

2004.   No response to the Court’s June 2, 2004, order was

received, and on August 13, 2004, the Court dismissed

petitioner’s case for lack of jurisdiction.

     On November 12, 2004, the Court filed petitioner’s motion to

vacate the order of dismissal.    Petitioner attached an amended

petition to his motion.   On November 12, 2004, the Court granted

petitioner’s motion, vacated the order of dismissal, and filed

petitioner’s amended petition.

     A notice setting case for trial during the Court’s

Cleveland, Ohio, trial session beginning March 27, 2006, was

served on petitioner on October 21, 2005.    By order dated March
                               - 6 -

23, 2006, the Court set petitioner’s case for a date and time

certain of 10:00 a.m. EST on Friday, March 31, 2006.

     When petitioner’s case was called for trial on March 31,

2006, petitioner did not appear.   Instead, George E. Harp (Mr.

Harp) appeared on petitioner’s behalf, and the Court filed Mr.

Harp’s entry of appearance.   Although Mr. Harp offered no

evidence at trial regarding petitioner’s unreported income,3 Mr.

Harp objected to all but one of respondent’s exhibits.    After

hearing argument on the objections, we overruled petitioner’s

objections and admitted the exhibits.

                              OPINION

I.   Unreported Income

     Section 61(a) defines gross income for purposes of

calculating taxable income as “all income from whatever source

derived”.   Respondent determined petitioner received gross income

in the form of taxable interest and medical and healthcare

payments, and that petitioner failed to file a 2001 Federal

income tax return reporting these items.

     3
        Petitioner did introduce into evidence a letter from
respondent’s counsel outlining documents respondent intended to
use at trial. It is unclear why petitioner introduced this
letter into evidence, as it does not relate to any issue and was
not cited by petitioner on brief.
                              - 7 -

     Generally, a taxpayer bears the burden of proving the

Commissioner’s determinations incorrect.4   Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).   However, the Court of

Appeals for the Sixth Circuit, the Circuit to which appeal in

this case would lie absent stipulation otherwise,5 has held:

“The law imposes much less of a burden upon a taxpayer who is

called upon to prove a negative--that he did not receive the

income which the Commissioner claims--than it imposes upon a

taxpayer who is attempting to sustain a deduction.”   Weir v.

Commissioner, 283 F.2d 675, 679 (6th Cir. 1960), revg. T.C. Memo.

1958-158; see also United States v. Walton, 909 F.2d 915, 918-919

(6th Cir. 1990); United States v. Besase, 623 F.2d 463, 465 (6th

Cir. 1980); Richardson v. Commissioner, T.C. Memo. 2006-69.     In

cases involving unreported income, the Commissioner bears the

initial burden of establishing “at least a ‘minimal’ factual

predicate or foundation of substantive evidence linking the

     4
        Petitioner does not argue that sec. 7491(a) operates to
shift the burden of proof to respondent. Even if petitioner had
so argued, the burden of proof would not shift under sec. 7491(a)
because petitioner has not shown he maintained any records, nor
has he cooperated with the reasonable requests of respondent
during the administrative proceedings or in preparation for
trial.
     5
        While petitioner apparently resided in California during
2001, he resided in Niles, Ohio, when he filed his petition and
amended petition. Sec. 7482(b)(1)(A) provides that reviewable
decisions of the Tax Court are appealable to the Circuit in which
the taxpayer resides at the time the petition was filed.
Therefore, this case is appealable to the Court of Appeals for
the Sixth Circuit.
                                 - 8 -

taxpayer to income-generating activity or to the receipt of

funds.”   Richardson v. Commissioner, supra (citing United States

v. Walton, supra at 918-919).     Once the Commissioner meets his

initial burden of production, the taxpayers bear the “burden of

producing credible evidence that they did not earn the taxable

income attributed to them or of presenting an argument that the

IRS deficiency calculations were not grounded on a minimal

evidentiary foundation.”     United States v. Walton, supra at 919.

     To satisfy his initial burden of production, respondent

introduced into evidence Forms 1099-Misc issued to petitioner by

14 third-party payors.     Respondent also introduced into evidence

checks issued to and cashed by petitioner from two third-party

payors.   Respondent introduced the Forms 1099-Misc as business

records through written declarations under rules 803(6) and

902(11) of the Federal Rules of Evidence and introduced the

checks as self-authenticating commercial paper under rule 902(9)

of the Federal Rules of Evidence.6

     6
        Petitioner argued on brief that respondent had the burden
of proof regarding the unreported income adjustments and
respondent did not satisfy that burden because the business
records and checks offered at trial were inadmissible. As
discussed elsewhere in this opinion, respondent bears only the
initial burden of production and not the ultimate burden of
proof. Respondent has satisfied his initial burden of production
by introducing the business records and checks. The business
records in question were kept in the regular course of business
and were properly authenticated in certifications submitted under
Fed. R. Evid. 803(6) and 902(11), and the checks are self-
authenticating commercial paper under Fed. R. Evid. 902(9).
                                                   (continued...)
                                - 9 -

     The business records and checks respondent introduced

establish that petitioner received income from medical and

healthcare payments during 2001.   While this evidence covers only

16 of the 25 third-party payors from which respondent determined

petitioner received income, it establishes a minimal factual

predicate or foundation of substantive evidence linking the

taxpayer to income-generating activity.    We conclude that

respondent laid the requisite foundation for the contested

unreported income from medical and healthcare payments and that

petitioner bears the burden of proving respondent’s determination

incorrect.

     Respondent did not, however, introduce any evidence

establishing that petitioner received interest income during

2001.    Because respondent has not laid the requisite foundation

in this regard, we find that the alleged interest income of $72

is not included in petitioner’s gross income for 2001.

     Petitioner did not attend the trial, and he did not attempt

through his counsel to introduce any evidence regarding the items

of unreported income.    Therefore, we conclude that petitioner has

failed to carry his burden of proof.    Respondent’s unreported

     6
      (...continued)
Therefore, the records and checks were properly admitted into
evidence at trial, and we do not consider petitioner’s arguments
further.
                              - 10 -

income adjustments relating to the medical and healthcare

payments are sustained.

II.   Self-Employment Tax

      Section 1401 imposes a tax on the self-employment income of

individuals.   Self-employment income means the net earnings from

self-employment derived by an individual.   Sec. 1402(b).

Respondent determined the medical and healthcare payments

received by petitioner constituted self-employment income and

consequently petitioner was liable for self-employment tax.

Petitioner bears the burden of proving respondent’s determination

incorrect.   See Rule 142(a); Welch v. Helvering, supra at 115.

Petitioner argues he is not liable for self-employment tax

because “Respondent has failed to establish self-employment

income”.   As described above, respondent established petitioner

received income from medical and healthcare payments received for

services rendered by petitioner.   Petitioner presented no

testimony or evidence regarding his liability for self-employment

tax and has failed to meet his burden of proof.   Therefore, we

conclude that petitioner is liable for self-employment tax.

III. Addition to Tax Under Section 6651(a)(1)

      Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed, unless the taxpayer can

establish that such failure is due to reasonable cause and not

willful neglect.   Respondent determined petitioner is liable for
                              - 11 -

an addition to tax under section 6651(a)(1) because he failed to

file a 2001 Federal income tax return.

      Respondent bears the burden of production with respect to

petitioner’s liability for the addition to tax under section

6651(a)(1).   See sec. 7491(c); Higbee v. Commissioner, 116 T.C.
438, 446-447 (2001).   To meet his burden of production,

respondent must come forward with sufficient evidence indicating

it is appropriate to impose the addition to tax.     See Higbee v.

Commissioner, supra at 446-447.    Once respondent meets his burden

of production, petitioner bears the burden of proving he is not

liable for the additions to tax.   See id. at 447.

      Respondent introduced into evidence a Form 3050,

Certification of Lack of Record, and a Form 4340, Certificate of

Assessments, Payments, and Other Specified Matters, both of which

show petitioner did not file a 2001 Federal income tax return.

On the basis of this evidence, we find that respondent has met

his burden of production.

      Petitioner did not introduce any evidence to prove he had

reasonable cause for his failure to file a 2001 Federal income

tax return.   Therefore, we conclude that petitioner is liable for

an addition to tax under section 6651(a)(1).

IV.   Addition to Tax Under Section 6654(a)

      Section 6654(a) imposes an addition to tax on an

underpayment of a required installment of individual estimated
                               - 12 -

tax unless one of the statutory exceptions applies.    Sec.

6654(a), (b), (e).    Each required annual installment of estimated

tax is equal to 25 percent of the “required annual payment”,

which is equal to the lesser of (1) 90 percent of the tax shown

on the individual’s return for that year (or, if no return is

filed, 90 percent of his tax for such year), or (2) if the

individual filed a return for the immediately preceding taxable

year, 100 percent of the tax shown on that return.    Sec.

6654(d)(1)(A) and (B).    Respondent determined that petitioner is

liable for an addition to tax under section 6654(a) because he

made no estimated tax payments for 2001.

       Respondent bears the burden of production with respect to

petitioner’s liability for the addition to tax under section

6654(a).    See sec. 7491(c); Higbee v. Commissioner, supra at 446-

447.    “In order to satisfy his burden of production * * *

regarding petitioner’s liability for the section 6654 addition to

tax, respondent, at a minimum, must produce evidence necessary to

enable the Court to conclude that petitioner had a required

annual payment under section 6654(d)(1)(B).”    Wheeler v.

Commissioner, 127 T.C. 200, 211 (2006).

       Respondent introduced into evidence Form 3050, which shows

that petitioner did not file tax returns for 2000 or 2001.

Thus, respondent has established that, because petitioner did not

file a 2000 Federal income tax return, petitioner was required by
                                - 13 -

section 6654(d)(1)(B) to make an annual payment during 2001 of 90

percent of the tax for 2001.7    Respondent also introduced into

evidence Form 4340, which shows that petitioner did not make the

required estimated tax payments.    On the basis of this evidence,

we find that respondent has met his burden of production.

     We do not find that a statutory exception to the addition to

tax under section 6654(e) applies.       Therefore, we conclude that

petitioner is liable for an addition to tax under section

6654(a).

V.   Penalty Under Section 6673(a)(1)

     Section 6673(a)(1) authorizes the Court to require a

taxpayer to pay the United States a penalty in an amount not to

exceed $25,000 whenever the taxpayer’s position is frivolous or

groundless or the taxpayer has instituted or pursued the

proceeding primarily for delay.    At trial and on brief,

respondent asked the Court to impose a penalty under section

6673(a)(1) against petitioner due to petitioner’s failure to

cooperate, his failure to appear at trial, and his continual

delay.

     Petitioner’s actions evidence an intention to delay the

proceedings, and he has failed to cooperate with respondent at

     7
        As discussed supra, respondent also established that
petitioner has tax due for 2001 as the result of the medical and
healthcare payments received. The amount of tax due, and
consequently, the amount of the additions to tax, must be
determined by the parties under Rule 155.
                              - 14 -

every level.   Additionally, while petitioner did not raise

typical tax-protester arguments, petitioner’s actions and his

failure to introduce any evidence to support his claims closely

mirrors the tactics of many tax protesters.    However, petitioner

was not warned until the conclusion of this case that a penalty

might be imposed under section 6673(a)(1).    For this reason only,

we decline to impose a penalty under section 6673(a)(1).    We

strongly admonish petitioner that if he persists in using tactics

of delay or in failing to cooperate with respondent in

proceedings hereafter, the Court will not be so favorably

inclined in the future.

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned above, we conclude that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,

                                         An appropriate order

                                    and decision will be entered

                                    under Rule 155.