Wiley M. Elick DDS, Inc. v. Commissioner

FILED
NOT FOR PUBLICATION JAN 15 2016
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
WILEY M. ELICK DDS, INC., No. 13-73071
Petitioner - Appellant, Tax Ct. No. 23768-10
v.
MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
WILEY M. ELICK and SHARON ELICK, No. 13-73837
Petitioners - Appellants, Tax Ct. No. 23767-10
v.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent - Appellee.
Appeal from a Decision of the
Tax Court
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Submitted January 6, 2016**
Pasadena, California
Before: M. SMITH, WATFORD, and FRIEDLAND, Circuit Judges.
In these consolidated appeals, taxpayers Wiley Elick and Sharon Elick (the
Elicks) and their jointly-owned dental practice Wiley M. Elick, DDS, Inc. (DDS),
appeal from a Tax Court decision affirming the Commissioner of Internal
Revenue’s determination of tax filing deficiencies. We have jurisdiction under 26
U.S.C. § 7482, and we affirm.
As the facts and procedural history are familiar to the parties, we do not
recite them here except as necessary to explain our disposition. We review the Tax
Court’s denial of a motion to amend a petition for abuse of discretion. See Kelley v.
Comm’r, 877 F.2d 756, 761 (9th Cir. 1989), abrogated on other grounds, Bufferd
v. Comm’r, 506 U.S. 523 (1993). The Tax Court’s conclusions of law are reviewed
de novo, and its findings of fact are reviewed for clear error. See DJB Holding
Corp. v. Comm’r, 803 F.3d 1014, 1022 (9th Cir. 2015). Whether an expense is
“ordinary and necessary” is a finding of fact. See Maciel v. Comm’r, 489 F.3d
1018, 1028 (9th Cir. 2007). “Whether a taxpayer acted with reasonable cause and
in good faith” is also a finding of fact. DJB Holding Corp., 803 F.3d at 1022.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2
1. The Tax Court acted within its discretion by denying the Elicks’ motion to
amend their petition. See Tax Ct. R. 41(a). The Elicks’ untimely motion to amend
was filed 41 days prior to trial, after the discovery deadline, and after nearly two
years of litigation. See Tax Ct. R. 70(a)(2). Under these circumstances, the Tax
Court properly concluded that the filing of an amended petition would have
prejudiced the Commissioner. See Solomon v. N. Am. Life & Cas. Ins., 151 F.3d
1132, 1139 (9th Cir. 1998).
2. Next, the Tax Court determined that management fees paid by DDS failed to
qualify as deductible business expenses because the fees were not “ordinary and
necessary.” See 26 U.S.C. § 162(a). The record amply supports the Tax Court’s
conclusion that the management fees were not necessary to DDS’ ongoing
business. DDS’ argument that the Tax Court mistakenly applied the burden of
proof under 26 U.S.C. § 7491(a) is unavailing. Even assuming that DDS met the
requirements for § 7491(a), the burden of proof is not determinative unless the
evidence is in equipoise. See United States v. Seschillie, 310 F.3d 1208, 1216 (9th
Cir. 2002). Such is not the case here, where the evidence corroborates the Tax
Court’s finding that the management fees paid by DDS did not correspond to
services actually received.
3
3. In addition, the Tax Court properly assessed accuracy-related penalties
pursuant to 26 U.S.C. § 6662. It found that the Elicks and DDS failed to make
reasonable attempts to ascertain the accuracy of the claimed deductions. See 26
C.F.R. § 1.6662–3(b)(1); see also 26 U.S.C. § 6664(c) (safe harbor provision for
taxpayers acting with “good faith” and “reasonable cause”). The management fees
that DDS claimed fluctuated significantly from year to year, and were not
corroborated by records of work performed. DDS not only failed to establish that it
received any services in exchange for those fees, but also disregarded the terms of
the management agreement. In addition, the Elicks’ and DDS’ reliance on outside
advisors for tax advice and return preparation did not extend to the factual
accuracy of the particular amounts claimed. The record supports the Tax Court’s
finding that Dr. Elick determined those amounts. See DJB Holding Corp., 803 F.3d
at 1030 (reliance on accountant unreasonable where taxpayer failed to provide
accountant with “all the necessary and accurate information”); 26 C.F.R. §
1.6664–4(b)(1).
4. Finally, the Tax Court assessed a late-filing addition to tax against the
Elicks. An addition to tax applies to late filings “unless it is shown that such failure
is due to reasonable cause and not due to willful neglect.” 26 U.S.C. § 6651(a)(1).
The Elicks’ argument that they relied on a tax professional’s advice to delay the
4
filing does not constitute reasonable cause. In United States v. Boyle, 469 U.S. 241
(1985), the Supreme Court held that failure to timely file a tax return was not
excused by reliance on an agent, since such reliance “cannot function as a
substitute for compliance with an unambiguous statute.” Id. at 251.
AFFIRMED.
5