McCammon v. Comm'r , 93 T.C.M. 649 ( 2007 )

T.C. Memo. 2007-3
UNITED STATES TAX COURT
JULIE K. MCCAMMON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 19719-04, 386-05, Filed January 8, 2007.
5557-05.
Julie K. McCammon, pro se.
Terry Serena, for respondent.
MEMORANDUM OPINION
COHEN, Judge: Respondent determined deficiencies in and
penalties and additions to tax with respect to petitioner’s
Federal income taxes for 2000, 2001, and 2002 (docket Nos.
19719-04, 386-05, and 5557-05, respectively), as follows:
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Additions to Tax/Penalties, I.R.C.
Year Deficiency Sec. 6651(a)(1) Sec. 6654 Sec. 6662(a)
2000 $147,076 - - $29,415.20
2001 341,684 $85,431 $13,654.96 -
2002 345,892 85,223 11,373.05 -
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
Petitioner failed to comply with various orders prior to the
date set for trial, failed to present evidence concerning her
income or deductions at the time of trial, was held in default
but given an opportunity to cure the default, and failed to make
any bona fide effort to cure the default. The issue for decision
is whether respondent’s determinations should be sustained in
full by reason of petitioner’s default. We have reviewed the
entire record to determine whether such a sanction is too severe
under the circumstances and have decided that it is not.
Background
Petitioner is a physician who resided in West Virginia at
the time that she filed her petitions. For 2000 and 2002, she
filed Forms 1040, U.S. Individual Income Tax Return, in which she
inserted zeros in each line calling for information concerning
income, deductions, or computations of tax. Attached to each of
the Forms 1040 was a frivolous statement contending that
petitioner did not have taxable income and containing various
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other well-worn and long-rejected tax protester arguments.
Petitioner failed to file a return for 2001.
Respondent reconstructed petitioner’s income from third-
party reporting, including Forms W-2, Wage and Tax Statement,
issued to petitioner by “Julie K. McCammon, M.D.”, Forms 1099
issued for interest paid by banks, capital gain income, and
various “medical payments”. The wages included in respondent’s
determination were $325,304 for 2000, $214,114 for 2001, and
$256,811 for 2002. The items included in respondent’s
determinations of income were listed and identified in schedules
attached to the statutory notices for each year.
In the petition in each case, petitioner denied that she had
any tax liability, denied the income items, and claimed that she
had dependents, business expenses, deductions, credits, etc. She
did not, however, identify any specific items in dispute.
By notices served April 6, 2006, the three cases were set
for trial in Charleston, West Virginia, on September 11, 2006.
Attached to the notice of trial was a Standing Pretrial Order
that stated, among other things:
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 91(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
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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 (except solely
for impeachment), but which are not stipulated, shall
be identified in writing and exchanged by the parties
at least 14 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. * * *
On June 5, 2006, the Court received from petitioner a letter
in which she referred to the three docketed cases and stated:
The docket numbers and tax years appear to be mixed up.
Would you please explain to me which docket number
applies to which tax year.
This case should be settled. If the IRS would
stipulate as to my business expenses, I will stipulate
as to the gross receipts and we can settle this case
out of court.
In response to that letter, the Court issued an order dated
June 6, 2006, which set out the docket numbers, years,
deficiencies, and additions to tax and penalties in issue. The
order continued:
The substantial deficiencies in issue in these
cases arise from respondent’s determination that
petitioner failed to report income for the years in
issue. As petitioner argues, no allowance has been
made for business expenses that would be normal under
such circumstances. However, despite petitioner’s
claims of uncertainty, amounts determined to be her
income are specified in the notices of deficiency sent
to her for the years in issue as attributable to
reporting by third-party payors. In any event, it
appears that the within cases contain common issues.
Upon due consideration and for cause, it is hereby
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ORDERED: That, on the Court’s own motion, the
above cases are consolidated for trial, briefing, and
opinion. It is further
ORDERED: That, on or before July 7, 2006, the
parties shall meet in person, at which meeting
petitioner shall present to respondent’s designated
representative all documents that petitioner contends
substantiate business expenses or other deductions or
exemptions to which she is entitled for the years in
issue. At such meeting, respondent shall present to
petitioner copies of all third-party payor reports or
other information used by the Internal Revenue Service
in determining the unreported income reflected in the
notices of deficiency in these cases. It is further
ORDERED: That, on or before July 21, 2006, the
parties shall, jointly or separately, file with the
Court a written report setting out the substance of the
meeting ordered above and their progress in compliance
with Rule 91, Tax Court Rules of Practice and
Procedure, and with the Court’s Standing Pretrial Order
served with the Notice Setting Case for Trial.
Petitioner failed to comply with the Court’s order of
June 6, 2006, asserting that her “busy schedule” prevented
meeting with respondent. Instead, on July 8, 2006, she wrote a
letter to the Court in which she stated:
The docket number 5557-05 for tax year 2002 could not
possibly be applicable as my paperwork shows I only
have 2 cases in Tax Court, for the years 2000 (Docket
19719-04) and 2001 (386-05).
I have no knowledge of filing an amended petition for
tax year 2002 (Docket 5557-05) nor receiving a Notice
of Deficiency for this year.
* * * * * *
I did not receive a 90 day letter in reference to tax
year 2002 and I did not file any petitions, amended
petitions or answers in reference to this year. I deny
all tax liability for this year and ask that proof be
provided to me to substantiate the claims that I filed
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any petitions or documents in accordance with the tax
year 2002. (Docket 5557-05).
I do not understand how you can consolidate my cases,
when one case is not in existence. I request this
court correct its records so I may prepare my case for
trial.
The Court responded to petitioner’s letter, enclosing a copy of
the petition that she had filed in docket No. 5557-05, contesting
the statutory notice for 2002. The Court’s letter, dated
July 27, 2006, continued:
Respondent’s status report was filed July 13,
2006, in response to the Court’s Order dated June 6,
2006. Based on respondent’s report, the attachments,
and your letter, it is obvious that you have not
complied with the Court’s Order. Notwithstanding your
“busy schedule”, immediate attention to these pending
matters is necessary. If you do not comply with the
applicable statutes and the Court’s Orders and Rules
with respect to the exchange of documents and
substantiation of your claimed deductions, none may be
allowed at the time of trial.
Moreover, your communications to date suggest that
these proceedings may have been instituted or
maintained primarily for delay and that you have
unreasonably failed to pursue available administrative
remedies. In such circumstances, Internal Revenue Code
section 6673 authorizes a penalty not in excess of
$25,000 (in each docketed case). Therefore, you are
urged to give these matters your immediate, thorough
and appropriate attention.
On September 5, 2006, petitioner filed a motion for
continuance. Respondent objected to petitioner’s motion for
continuance because, in part:
2. Petitioner alleges in her Motion for
Continuance that more time is needed to secure records,
prepare for trial, and fill out stipulations.
Respondent issued notices of deficiency to petitioner
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on August 18, 2004, November 3, 2004, and January 19,
2005, for the taxable years 2000, 2001, and 2002,
respectively. Petitioner filed her amended petitions
on December 1, 2004, February 16, 2005, and May 9,
2005, for the taxable years 2000, 2001, and 2002,
respectively, alleging that she had business expenses.
Petitioner has not made available to respondent any
records regarding any business expenses during the two
year period that has elapsed since respondent’s first
notice of deficiency.
* * * * * *
4. Petitioner alleges respondent has been unfair,
demanding, and unreasonable when petitioner requests
settlement, when in fact, petitioner has made no
attempt to resolve her cases, has cancelled all
conferences scheduled by respondent, and has failed to
provide respondent with any evidence whatsoever
regarding her alleged expenses, despite respondent’s
repeated invitations to do so. Petitioner failed to
comply with this Court’s order of June 6, 2006 to meet
and provide such business expenses.
Petitioner’s motion for continuance was denied, in part because
the Court conducts sessions in Charleston, West Virginia, only
once a year. There was no justification for postponing trial for
a year in the absence of any assurance that petitioner would make
an effort to cooperate in the determination of her tax
liabilities.
On September 7, 2006, petitioner filed a motion to recuse,
alleging that the judge to whom the cases had been assigned had a
personal bias and prejudice against petitioner as a pro se
litigant. That motion was denied. The Court had twice, in the
order of June 6, 2006, and the letter of July 27, 2006, made
special efforts to notify petitioner of what was required of her.
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When the cases were called from the calendar for trial on
September 11, 2006, petitioner again moved for a continuance. In
addition to her claims that she was too busy to produce documents
to respondent, petitioner alleged that her accountant had quit in
January 2006, 8 months earlier, and that she had hired a new
accountant “within the last two weeks”. Petitioner still could
not identify any erroneous income items included in respondent’s
determination or any deductions to which she claimed entitlement.
Given the opportunity to testify regarding the penalties, she
proceeded as follows:
THE WITNESS [petitioner]: Your Honor, I would
like to have it on the record that I am an extremely
busy physician in sole practice of obstetrics and
gynecology, which no one wants to practice in West
Virginia anymore.
I do high risk obstetrics because there are no
high risk obstetricians in my area. I have eight
thousand or approximately eight thousand patients now
registered in my computer, though I have more. I
perform a service by myself that no one else can do,
working 24 hours a day.
I have no vacation, and the last vacation I took
was in 1989. I have tried to work with the Court, and
I would like to meet with counsel to come up with a
settlement. I had just needed more time. My
accountant had quit suddenly in January, and as I
mentioned previously, I had thought I could do the work
myself, and I realized that I couldn’t at this time.
After asking for records from him, I * * * now
received them partially, and I have hired a new
accountant. I was led to believe that it was my right
to file zero if I expected that I would not owe taxes
because of my deductions and allowances.
THE COURT: Who told you that?
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THE WITNESS: My previous accountant had obtained
some information.
THE COURT: Your accountant told you that?
THE WITNESS: Yes, my previous accountant.
THE COURT: Do you wish to identify that person?
THE WITNESS: Not really.
In order to allow petitioner one further opportunity to
substantiate deductions, the Court issued an order as follows:
These cases were called for trial in Charleston,
West Virginia, on September 11, 2006, pursuant to
notice duly given. Petitioner orally moved the Court
for a continuance, which was denied for reasons
appearing in the transcript of proceedings. Petitioner
had failed to comply with the Court’s Order dated
June 5 [June 6], 2006, or the Standing Pretrial Order
served with the notice of trial. The parties did,
however, stipulate to Forms 1040 submitted by
petitioner for 2000 and 2002 and to the notices of
deficiency that are the basis of these cases.
Petitioner testified briefly with respect to the
penalties in issue, claiming reliance on an
“accountant” whom she declined to identify. Upon due
consideration and for cause, it is hereby
ORDERED: That petitioner is held in default
pursuant to Rule 123(a), Tax Court Rules of Practice
and Procedure, by reason of petitioner’s failure to
comply with the Court’s orders and rules or otherwise
properly to prosecute these cases. It is further
ORDERED: That the determinations of income set
forth in the statutory notices are sustained by reason
of petitioner’s failure to assert a reasonable dispute
with respect to any item of income reported on the
information returns used in respondent’s determination.
See sec. 6201(d), Internal Revenue Code. It is further
ORDERED: That, on or before December 11, 2006,
petitioner shall show cause in writing served on
respondent and filed with the Court why the within
cases should not be dismissed by reason of her failure
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properly to prosecute these cases, with decisions
entered in the full amounts of deficiencies, additions
to tax, and penalties determined in the statutory
notices. Such showing shall include (1) a
representation that, on or before October 23, 2006,
petitioner delivered to respondent’s counsel, or to a
designee of respondent’s counsel, all documents
identifying or substantiating deductions, exemptions,
or credits to which petitioner claims entitlement for
tax years 2000, 2001, and 2002 and (2) a report with
respect to items remaining in dispute after
respondent’s response ordered hereinbelow. Such report
shall include copies of all documents relating to the
items remaining in dispute, identification of witnesses
that petitioner would call at any further trial of
these cases, a summary of the testimony of each such
witness, and an estimate of the time required for such
testimony. It is further
ORDERED: That, on or before November 22, 2006,
respondent shall advise petitioner in writing with
respect to any deductions, exemptions, or credit that
respondent will allow for the years in issue based on
the material produced to respondent by petitioner no
later than October 23, 2006. It is further
ORDERED: That, on or before December 11, 2006,
respondent shall serve on petitioner and file with the
Court a written report as to respondent’s then position
as to further proceedings in these cases.
The parties are advised that further trial of
these cases, if appropriate, may be set in Washington,
D.C., as indicated at the hearing on September 11,
2006, or, if the parties agree, may be set in
Louisville, Kentucky, during the Trial Session of the
Court scheduled to commence there on February 5, 2007.
Petitioner failed to comply with the Court order of
September 11, 2006. She did not present to respondent any
substantiation of expenses claimed. She did provide copies of
unsigned Forms 1120S, U.S. Income Tax Return for an S
Corporation, for the periods ended December 31, 2000;
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December 31, 2001; and December 31, 2002. By letter dated
November 7, 2006, respondent notified petitioner in writing that
the documents did not support respondent’s consideration or
allowance of any deductions, exemptions, or credits from or
against her individual income or income taxes. Although the date
by which petitioner was to submit documentation pursuant to the
Court’s order had passed, respondent requested that petitioner
provide substantiation of any items she would like to be
considered. Petitioner failed to provide any further
substantiation, responding only with a letter containing a
spurious attack on respondent’s counsel. Neither party has
requested further trial of these cases.
The Forms 1120S that were submitted by petitioner to
respondent reported “Compensation of officers” of $325,304;
$214,114; and $256,811, which corresponded to the amounts
determined by respondent for 2000, 2001, and 2002, respectively.
In addition, the Forms 1120S reported ordinary income distributed
to petitioner as the sole S corporation shareholder of $116,493;
$247,729; and $161,859 for 2000, 2001, and 2002, respectively.
The shareholder distributions were not included in the amounts of
income determined in respondent’s statutory notices. The Social
Security number shown for petitioner on the Forms 1120S is not
the same as the Social Security number shown for petitioner on
her Forms 1040 and on the petitions filed in these cases. The
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amount of gross receipts reported on Form 1120S for 2000 was
$731,619, and presumably was compensation for petitioner’s
services as a physician. Only $79,703 in medical payments was
included as income in the statutory notice for 2000. The gross
receipts reported on Form 1120S for 2001, $731,091, exceeded the
medical payments included in the statutory notice for 2001,
$614,748. The gross receipts reported on Form 1120S for 2002,
$739,085, exceeded the medical payments included in the statutory
notice for that year, $612,981.
Discussion
Rule 123 provides in part as follows:
(a) Default: If any party has failed to plead or
otherwise proceed as provided by these Rules or as
required by the Court, then such party may be held in
default by the Court either on motion of another party
or on the initiative of the Court. Thereafter, the
Court may enter a decision against the defaulting
party, upon such terms and conditions as the Court may
deem proper, or may impose such sanctions (see, e.g.,
Rule 104) as the Court may deem appropriate. The Court
may, in its discretion, conduct hearings to ascertain
whether a default has been committed, to determine the
decision to be entered or the sanctions to be imposed,
or to ascertain the truth of any matter.
(b) Dismissal: For failure of a petitioner
properly to prosecute or to comply with these Rules or
any order of the Court or for other cause which the
Court deems sufficient, the Court may dismiss a case at
any time and enter a decision against the petitioner.
The Court may, for similar reasons, decide against any
party any issue as to which such party has the burden
of proof, and such decision shall be treated as a
dismissal for purposes of paragraphs (c) and (d) of
this Rule.
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Rule 149(b) provides in part as follows:
(b) Failure of Proof: Failure to produce
evidence, in support of an issue of fact as to which a
party has the burden of proof and which has not been
conceded by such party’s adversary, may be ground for
dismissal or for determination of the affected issue
against that party. * * *
Generally, petitioner has the burden of showing errors in
respondent’s determinations. Rule 142(a). Section 7491(a)
provides for the burden of proof on respondent if the taxpayer
introduces credible evidence with respect to any factual issue
relevant to ascertain her liability, has complied with
substantiation requirements, has maintained all records required,
and has cooperated with reasonable requests for witnesses,
information, documents, meetings, and interviews. Petitioner has
done none of those things, and the burden of proof remains with
her. Notably, with respect to deductions, petitioner must bear
the burden of proof. See Rockwell v. Commissioner, 512 F.2d 882
(9th Cir. 1975), affg. T.C. Memo. 1972-133. With respect to
penalties, section 7491(c) ordinarily imposes the burden of
production on respondent, as discussed below.
While claiming throughout these cases that she did not owe
any taxes or wished to settle her tax liability, petitioner has
repudiated efforts by respondent’s counsel and by the Court to
secure information necessary to a negotiated settlement or to a
determination on the merits. Petitioner seeks “waiver” of the
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penalties and additions to tax on the ground that she is too busy
to keep up with her tax obligations.
The deductions claimed on the S corporation returns that
petitioner produced have not been substantiated. Even taking
them at face value, however, for 2000, petitioner received wages
($325,304) and S corporation profits ($116,493) exceeding the
total wages and medical payments determined in the statutory
notice ($405,007). For 2001 and 2002, the income reported on the
S corporation returns substantially exceeded the medical payments
income discovered by respondent as a result of third-party
reporting. Although it is not clear whether or when the S
corporation returns were filed, use of a different Social
Security number for petitioner apparently resulted in the
corporation’s net income’s not being included in the notices of
deficiency. Petitioner’s recalcitrance has made it impossible to
determine with confidence the precise amount of her taxable
income. On the entire record, however, we cannot conclude that
the deficiencies are excessive. Thus, we do not believe that
justice requires that petitioner be provided any further
opportunities to cure her prior defaults.
Petitioner has repeatedly asserted that respondent’s counsel
and the Court are biased against pro se litigants. She has made
other spurious charges. Petitioner’s claims are totally without
merit. The Court’s orders and Rules take into consideration that
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the majority of the cases pending in this Court are filed by pro
se litigants, most of whom do not have the educational background
that petitioner has. (Of the 46 groups of cases on the
September 11, 2006, calendar in Charleston, West Virginia, 43
groups involved pro se taxpayers. Thirty-three groups of cases
settled before or shortly after the calendar call.) Petitioner’s
pro se status does not entitle her to disregard orders or Rules
of the Court. See, e.g., Bauer v. Commissioner, 97 F.3d 45 (4th
Cir. 1996). She was clearly warned by the Court’s orders and
letter of the consequences of her failure to comply. If
petitioner truly desires a settlement, she must present
respondent’s counsel with information that would justify any
concession by respondent. If she wishes to refute the
deficiencies on the merits, she must produce evidence. She has
refused to do anything to show merit in her cases.
In the statutory notices and in respondent’s trial
memorandum, each item of income determined in respondent’s
determination for each year is listed by payor, form of third-
party report, and amount. That information was also provided to
petitioner in accordance with the Court’s order of June 6, 2006,
yet petitioner has shown no error in the determination of income.
See sec. 6201(d). We infer from her failure to produce evidence
that she has none or that it would be unfavorable to her claims.
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See Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158,
1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).
Petitioner has not presented any substantiation of
deductions claimed on the Forms 1120S or any other deductions
that she wished to claim on her Forms 1040. In effect, she has
received the benefit of some unsubstantiated deductions from the
gross income acknowledged on the Forms 1120S, which exceeds the
income determined to be taxable to her. We cannot conclude that
the income set forth in the statutory notices as compensation for
her medical services exceeds the correct total income taxable to
her as wages or as S corporation income. She has not identified
any error in the determinations of interest or capital gain
income. She has given us no indication that personal itemized
deductions exceed the standard deduction allowed in the statutory
notices.
The record contains copies of the Forms 1040 submitted by
petitioner for 2000 and 2002. For 2000, respondent determined a
penalty under section 6662(a). Petitioner’s Form 1040, with its
frivolous attachment, on its face establishes negligence.
Petitioner’s testimony that an unidentified accountant advised
her that she could file “zero income returns” does not show
reasonable reliance or good faith and is not credible.
For 2001, respondent contends, and petitioner does not deny,
that petitioner did not file a return. For 2002, the record
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reflects that petitioner again submitted a frivolous Form 1040,
which was not a valid return. See Cabirac v. Commissioner, 120
T.C. 163, 168-170 (2003). Petitioner’s arguments with respect to
the penalties and additions to tax, i.e., that she was “too busy”
to comply and relied on the unidentified accountant, have no
merit.
Petitioner was fully warned in the letter of July 27, 2006,
on the record at the time for trial, and by our order of
September 11, 2006, of the consequences of her failure to produce
evidence in support of her deductions or otherwise properly to
prosecute these cases. She did not comply with the orders of the
Court. On the existing record, we are satisfied that the
appropriate action under Rules 123 and 149(b) is to make our
order to show cause absolute and to dismiss these cases.
In the Court’s letter dated July 27, 2006, the Court
referred petitioner to the provisions of section 6673(a)(1),
which are:
SEC. 6673(a). Tax Court Proceedings.--
(1) Procedures instituted primarily for
delay, etc.–-Whenever it appears to the Tax Court
that--
(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,
(B) the taxpayer’s position in such
proceeding is frivolous or groundless, or
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(C) the taxpayer unreasonably failed to
pursue available administrative remedies,
the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not
in excess of $25,000.
By her repeated refusals to provide substantiation of her
deductions and other claims, petitioner has unreasonably failed
to pursue available administrative remedies. Even if she had
belatedly produced acceptable substantiation, a penalty under
section 6673 might be appropriate. See Suri v. Commissioner,
T.C. Memo. 2004-71, affd. 96 AFTR 2d 2005-6526 (2d Cir. 2005);
Griest v. Commissioner, T.C. Memo. 1995-165. We are not imposing
a penalty at this time, because dismissal of the petitions is
sanction enough. However, inasmuch as petitioner has filed
another petition in this Court for 2003 (docket No. 10677-06),
she is hereby warned that the type of recalcitrance, obstruction,
and procrastination evident in these cases may result in an
additional sanction of up to $25,000.
To reflect the foregoing,
An appropriate order and
decision will be entered in
each case.