William T. Ashford ( 2022 )

United States Tax Court
T.C. Memo. 2022-101WILLIAM T. ASHFORD,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket Nos. 17590-18, 2492-19. Filed September 29, 2022.
—————
William T. Ashford, pro se.
Timothy J. Driscoll and Amy Dyar Seals, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: In these consolidated cases respondent
determined deficiencies and additions to tax with respect to petitioner’s
2013 and 2014 federal income tax as follows: 1
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
Served 09/29/22
2
[*2] Additions to Tax
Year Deficiency § 6651(a)(1) § 6651(a)(2) 2 § 6654(a)
2013 $30,347 $6,756.08 $7,506.75 $538.57
2014 32,142 7,143.98 5,873.94 569.37
The issues for decision are whether petitioner (1) had unreported income
as set forth in the notices of deficiency; (2) is liable for the section 72(t)
additional tax relating to a distribution he received in 2013; (3) is liable
for additions to tax under section 6651(a)(1); (4) is liable for additions to
tax under section 6651(a)(2); (5) is liable for additions to tax under
section 6654(a); and (6) is liable for a frivolous position penalty under
section 6673(a)(1).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. We
incorporate the First Stipulation of Facts and accompanying Exhibits by
this reference. Petitioner resided in North Carolina when the Petition
was filed.
Compensation for services and other economic activities
During taxable years 2013 and 2014 petitioner performed
services for Aviation Managed Solutions, Inc. (AMS), and served in the
Air National Guard. AMS paid petitioner $89,977 and $98,565 in 2013
and 2014, respectively, and reported those amounts on Forms 1099–
MISC, Miscellaneous Income. Petitioner also received wages of $5,924
and $6,380 in 2013 and 2014, respectively, from the Department of the
Air Force (Air Force). The Air Force reported those amounts on Forms
W–2, Wage and Tax Statement.
In 2013 petitioner received $4,300 from an individual retirement
account (IRA) held at National Financial Services, LLC, which reported
the distribution on Form 1099–R, Distributions From Pensions,
2 These amounts reflect the additions to tax under section 6651(a)(2) only
through the dates of the notices of deficiency. The additions to tax will continue to
accrue from the due date of the returns at a rate of 0.5% per month, or fraction thereof,
of nonpayment, not to exceed 25%.
3
[*3] Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance
Contracts, etc. Petitioner was under the age of 59-1/2 in 2013.
Substitutes for returns, notices of deficiency, and Tax Court proceedings
Although he filed an income tax return for 2012, petitioner did
not do so for 2013 or 2014. Having received no returns from petitioner
for the years in issue, respondent prepared substitutes for returns
(SFRs) on the basis of third-party reporting. 3 See § 6020(b). On
November 6 and June 6, 2018, respondent issued notices of deficiency
for 2013 and 2014, respectively. Therein respondent determined that
petitioner had taxable income as follows:
2013 2014
Retirement distribution $4,300 -0-
Nonemployee compensation 89,977 $98,565
Wages 5,924 6,380
Total $100,201 $104,945
The notices of deficiency also include determinations that petitioner is
liable for self-employment tax on the nonemployee compensation he
received for the years in issue. 4 Moreover, with respect to petitioner’s
2013 retirement distribution, respondent determined a 10% additional
tax under section 72(t).
In response to each notice, petitioner timely petitioned this Court,
and we consolidated these cases for trial, briefing, and opinion. Before
trial petitioner filed a Pretrial Memorandum, in which he advanced
frivolous arguments. He also stipulated receiving the wages,
nonemployee compensation, and retirement distribution determined by
respondent. A remote trial was held at a Winston-Salem, North
3 Each SFR includes Form 4549, Income Tax Examination Changes, or
equivalent, Form 886–A, Explanation of Items, and Form 13496, IRC Section 6020(b)
Certification.
4 Petitioner does not address his liability for self-employment tax in his
Petitions or on brief and has therefore conceded the issue. See Rule 34(b)(4) (“Any
issue not raised in the assignments of error shall be deemed to be conceded.”); Mendes
v. Commissioner, 121 T.C. 308, 312–13 (2003); Rybak v. Commissioner, 91 T.C. 524,
566 (1988). For each year respondent determined self-employment tax, respondent
allowed petitioner a deduction for one-half of the self-employment tax to be paid.
4
[*4] Carolina, trial session of the Court. After trial, each party filed a
Simultaneous Opening Brief and Simultaneous Answering Brief.
Respondent’s Simultaneous Answering Brief includes a request that the
Court penalize petitioner pursuant to section 6673(a)(1).
OPINION
I. Unreported income
A. Burden of proof
The Commissioner’s determinations in a notice of deficiency are
generally presumed correct, and taxpayers bear the burden of proving
them erroneous. 5 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). The U.S. Court of Appeals for the Fourth Circuit, the appellate
venue in these cases absent stipulation to the contrary, has held that
the usual presumption of correctness applies in omitted income cases
where the Commissioner employs a “reasonable method of determining
income.” Williams v. Commissioner, 999 F.2d 760, 763–64 (4th Cir.
1993), aff’g T.C. Memo. 1992-153.
Respondent determined petitioner’s income on the basis of third-
party information returns, and petitioner stipulated receiving the
amounts respondent determined. Respondent has thus shown reliance
on a reasonable method of determining income. See Robbins v.
Commissioner, T.C. Memo. 2017-247, at *6–7. The burden accordingly
shifts to petitioner to prove by a preponderance of the evidence that
respondent’s determinations are arbitrary or erroneous. See Helvering
v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v. Commissioner, 87 T.C.
74, 76–77 (1986).
B. Compensation and other income
Respondent determined that petitioner (1) had unreported wages
and nonemployee compensation for the years in issue and (2) had an
unreported retirement distribution for 2013. Petitioner disputes
5 Section 7491(a) provides that if, in any court proceeding, a taxpayer
introduces credible evidence with respect to any factual issue relevant to ascertaining
the liability for tax and meets other prerequisites, the burden of proof rests on the
Commissioner as to that factual issue. See Higbee v. Commissioner, 116 T.C. 438,
440–41 (2001). Petitioner has not shown that he satisfied the requirements of section
7491(a) to shift the burden of proof to respondent.
5
[*5] respondent’s determinations that he had taxable income for the
years in issue.
Section 1 imposes an income tax on taxable income, and section
63 defines taxable income as gross income minus deductions. Section
61(a) defines gross income to include “income from whatever source
derived.” More specifically, section 61(a)(1) includes in an individual’s
gross income any compensation for services. Amounts distributed from
an IRA are also includible in a taxpayer’s gross income as provided in
section 72 subject to certain exceptions. § 408(d)(1). Clearly, the wages,
nonemployee compensation, and retirement distribution received by
petitioner constitute gross income for federal income tax purposes. See
Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955) (stating
that gross income includes all accessions to wealth that are clearly
realized and under the control of the taxpayer); McNair v. Eggers, 788
F.2d 1509, 1510 (11th Cir. 1986) (per curiam) (describing the taxpayer’s
argument that his wages were not income as “patently frivolous”);
Grimes v. Commissioner, 82 T.C. 235, 237 (1984); Reiff v. Commissioner,
77 T.C. 1169, 1173 n.7 (1981).
Petitioner advances several arguments as to why the income he
stipulated receiving is nontaxable. For one, he cites a May 6, 2019,
Social Security Administration (SSA) statement pertaining to his 2013
taxable year. That document states: “Based on information provided to
us from the Internal Revenue Service, we are reducing the amount of
your self-employment income on your Social Security earnings record
from $83,093.00 to $0.00 for tax year 2013.” See § 6103(l)(1)(A) (“The
Secretary may . . . disclose returns and return information with respect
to . . . taxes imposed by chapters 2 [Tax on Self-Employment Income],
21, and 24, to the Social Security Administration for purposes of its
administration of the Social Security Act.”). Petitioner’s argument, as
we understand it, is that the SSA statement is a concession by
respondent that he did not have self-employment income for 2013.
However, respondent has not made such a concession in these
cases. To the contrary, the parties stipulated that petitioner had
received $89,977 from AMS for 2013. They also stipulated the
authenticity of a wage and income transcript showing that the $89,977
was reported as nonemployee compensation. Because petitioner’s
6
[*6] argument conflicts with stipulated facts, it has no merit. 6 See Rule
91(e) (“A stipulation shall be treated, to the extent of its terms, as a
conclusive admission by the parties to the stipulation, unless otherwise
permitted by the Court or agreed upon by those parties.”).
Petitioner also argues that the deficiencies are invalid because
(1) they are based on “Dummy Returns” and (2) respondent purportedly
lost his examination file for 2013. With respect to the former argument,
the contention that the Commissioner must file an SFR under section
6020(b) before determining a deficiency is frivolous. Stewart v.
Commissioner, T.C. Memo. 2005-212, 2005 Tax Ct. Memo LEXIS 212,
at *5 (citing Schiff v. United States, 919 F.2d 830, 832–33 (2d Cir. 1990)).
The Commissioner need not prepare an SFR under section 6020(b) in
order to determine a deficiency for a taxpayer who has not filed a return
for that year. Hartman v. Commissioner, 65 T.C. 542, 545 (1975);
Stewart, 2005 Tax Ct. Memo LEXIS 212, at *5. Where a taxpayer files
no return, the Commissioner may determine the deficiency as if a return
had been filed on which the taxpayer reported the amount of tax due
was zero; the deficiency is the amount of tax due. Laing v. United States,
423 U.S. 161, 174 (1976); Schiff, 919 F.2d at 832–33; Stewart, 2005 Tax
Ct. Memo LEXIS 212, at *5. In these cases petitioner did not file tax
returns for the years in issue, and respondent prepared SFRs before
issuing the deficiency notices. Even if we assumed that those SFRs
failed to satisfy the requirements of section 6020(b) (as petitioner
argues), the failure would not invalidate the deficiencies at bar.
As for petitioner’s contention that respondent lost his
examination file, a taxpayer may be entitled to due process relief if he
or she can show that the lost file includes documents that are material
in a constitutional sense. See Riland v. Commissioner, 79 T.C. 185, 195
(1982). However, “[t]he mere possibility that an item of undisclosed
information might have helped the defense, or might have affected the
outcome of the trial, does not establish ‘materiality’ in the constitutional
sense.” Id. (quoting United States v. Agurs, 427 U.S. 97, 109–10 (1976)).
Petitioner has not identified or even attempted to describe any specific
documents respondent purportedly lost. His argument therefore
amounts to mere speculation that respondent lost information that may
have helped him. Because such speculation does not establish
6 In April 2019 the IRS prematurely assessed the deficiency and additions to
tax for 2013 and then reversed that assessment the following month. The SSA’s
reduction of self-employment income from petitioner’s earnings record corresponds
with the IRS’s reversal of the premature assessment.
7
[*7] materiality in a constitutional sense, petitioner’s argument is
without merit.
Consequently, we uphold respondent’s determinations of
unreported income. 7
II. Additional tax under section 72(t)
For 2013 respondent determined that petitioner is liable for an
additional tax of $430 under section 72(t). Section 72(t)(1) imposes a
10% additional tax on the taxable amount of an early distribution from
a qualified retirement plan (as defined in section 4974(c)). A
distribution is early if it is made before the recipient attains the age of
59-1/2. § 72(t)(2)(A)(i). However, the 10% additional tax does not apply
to certain distributions, such as those attributable to the taxpayer’s
disability or made for the payment of certain medical expenses. See
§ 72(t)(2)(A) and (B).
Petitioner does not address his liability for the section 72(t)
additional tax on brief. We therefore deem the issue conceded and
sustain respondent’s determination. See Mendes, 121 T.C. at 312–13 (“If
an argument is not pursued on brief, we may conclude that it has been
abandoned.”). 8
III. Additions to tax
Section 6651(a)(1) provides for an addition to tax for failure to
timely file a return unless the taxpayer proves that the failure was due
to reasonable cause and not due to willful neglect. Section 6651(a)(2)
provides for an addition to tax for failure to timely pay the amount
shown as tax on a return unless the taxpayer proves that the failure was
due to reasonable cause and not due to willful neglect. Section 6654(a)
7 Petitioner also argues that the notice of deficiency for 2013 is ambiguous and
therefore invalid. This Court has held that a deficiency notice is valid if it objectively
places a reasonable taxpayer on notice that the Commissioner has determined a
deficiency in tax for a particular year and amount. Dees v. Commissioner, 148 T.C. 1,
6 (2017). The notice of deficiency clearly reflects respondent’s determination that
petitioner has a deficiency in income tax of $30,347 for 2013. Accordingly, the notice
is valid.
8 In any event, the parties stipulated petitioner’s receipt of a $4,300
distribution from a retirement account for 2013. Petitioner, who was under 59-1/2
years of age throughout 2013, has not established his eligibility for any of the
exceptions listed in the statute.
8
[*8] imposes an addition to tax on a taxpayer who fails to make required
payments of estimated tax.
With respect to additions to tax and penalties, section 7491(c)
ordinarily imposes the burden of production on the Commissioner.
Higbee, 116 T.C. at 446–47. However, petitioner made no assignments
of error as to the additions to tax that were determined in the notices of
deficiency. Petitioner is deemed to have conceded those items. See Rule
34(b)(4). Accordingly, respondent incurs no obligation to produce
evidence in support of those determinations pursuant to section 7491(c).
See Funk v. Commissioner, 123 T.C. 213, 218 (2004); Swain v.
Commissioner, 118 T.C. 358, 365 (2002).
In any event, the record establishes that petitioner was required
to file his federal income tax returns for 2013 and 2014 and pay the tax
due, and he failed to do so. Moreover, with respect to section 6651(a)(2),
for each year respondent prepared an SFR which meets the
requirements of section 6020(b). 9 See Wheeler v. Commissioner, 127 T.C.
200, 208–10 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). Regarding
section 6654, the record establishes that petitioner failed to make his
required annual payments for the years in issue. 10
Petitioner disputes the additions to tax on brief and asserts that
the record lacks evidence of respondent’s compliance with section
6751(b)(1). That section provides: “No penalty under this title shall be
assessed unless the initial determination of such assessment is
personally approved (in writing) by the immediate supervisor of the
9The SFRs comprise Forms 4549, 886–A, and 13496. That combination of
documents is sufficient to constitute a valid SFR under section 6020(b). See Rader v.
Commissioner, 143 T.C. 376, 382 (2014) (citing Gleason v. Commissioner, T.C. Memo.
2011-154, 2011 WL 2600917, at *12), aff’d in part, 616 F. App’x 391 (10th Cir. 2015).
10 The section 6654 addition to tax is calculated with reference to four required
installment payments of the taxpayer’s estimated tax liability. § 6654(c)(1). Each
required installment of estimated tax is equal to 25% of the required annual payment.
§ 6654(d)(1)(A). The required annual payment is the lesser of (i) 90% of the tax shown
on the individual’s return for that year (or, if no return is filed, 90% of his or her tax
for such year), or (ii) if the individual filed a return for the immediately preceding
taxable year, 100% of the tax shown on that return. § 6654(d)(1)(B). With respect to
2013, petitioner admitted at trial that he had filed a return for 2012 showing tax due.
Although his 2013 account transcript reflects a withholding credit of $320, petitioner
has neither argued nor shown that his 2013 withholding equaled or exceeded the
amount of tax shown on his 2012 return. As for 2014, petitioner’s required annual
payment for that year was 90% of his tax for that year because he had not filed a return
for 2013 or 2014. Petitioner made no payments in 2014.
9
[*9] individual making such determination or such higher level official
as the Secretary may designate.” However, the additions to tax under
sections 6651(a) and 6654 are excepted from section 6751(b)(1), and they
may be assessed without supervisory approval. § 6751(b)(2)(A); ATL &
Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 150 (2019).
IV. Frivolous position penalty
We now consider respondent’s request to impose a penalty against
petitioner pursuant to section 6673(a)(1). That section authorizes the
Court to require a taxpayer to pay a penalty to the United States in an
amount not to exceed $25,000 whenever it appears to the Court that the
taxpayer instituted or maintained the proceeding primarily for delay or
that the taxpayer’s position in the proceeding is frivolous or groundless.
Respondent contends that a penalty is appropriate because petitioner
advanced frivolous arguments throughout this proceeding.
As we have noted in this Opinion, some arguments raised by
petitioner have previously been found to be frivolous. However, this
appears to be petitioner’s first case in this Court. While we have
discretion to impose a penalty against him under section 6673(a)(1), we
decline to do so at this time. Nevertheless, we caution petitioner that
he risks penalties under section 6673(a)(1) if he presses similar
arguments in the future.
We have considered the parties’ arguments and, to the extent not
addressed herein, conclude that they are moot, irrelevant, or without
merit.
The foregoing considered,
An appropriate order will be issued denying respondent’s request
for a section 6673 penalty, and decisions will be entered for respondent.