R. Jean Fisher v. Commissioner

T.C. Memo. 2014-219UNITED STATES TAX COURT
R. JEAN FISHER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18291-12. Filed October 16, 2014.
R. Jean Fisher, pro se.
John R. Bampfield, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
KERRIGAN, Judge: Respondent determined the following deficiencies and
additions to tax with respect to petitioner’s Federal income tax for tax years 2002
through 2010:
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[*2] Additions to tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
2002 $143,852 $32,066 $35,629 $4,758
2003 16,176 3,390 3,767 386
2004 20,678 4,396 4,885 556
2005 25,979 5,554 6,171 984
2006 50,788 11,290 12,545 2,371
2007 14,012 3,153 (1) 38
2008 19,234 4,328 (1 ) 618
2009 16,605 3,736 (1) 398
2010 12,080 2,718 (1) 259
1
The sec. 6651(a)(2) addition to tax for 2007 through 2010 had not yet
reached the 25% maximum as of the mailing date of the notice of deficiency.
Unless otherwise indicated, all section reference are to the Internal Revenue
Code in effect for the years at issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure. All monetary amounts are rounded to the nearest
dollar.
After concessions the issues for consideration are whether amounts paid to
petitioner by the Richard W. Quisling, M.D., P.C. (Quisling), in tax years 2003
through 2010 are includible in gross income and whether petitioner is liable for
additions to tax pursuant to sections 6651(a)(1) and (2) and 6654.
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[*3] FINDINGS OF FACT
Some of the facts have been stipulated and are so found. Petitioner resided
in Tennessee when she filed her petition.
Petitioner did not file income tax returns for tax years 2002 through 2010.
Pursuant to section 6020(b) respondent prepared and signed substitutes for returns
for tax years 2002 through 2010.
Richard W. Quisling is the sole shareholder of Quisling through which Dr.
Quisling operated a medical practice. Quisling paid petitioner the following
amounts for the tax years in issue:
Year Payment
2002 -0-
2003 $24,753
2004 46,595
2005 37,500
2006 48,000
2007 48,000
2008 55,000
2009 56,190
2010 49,836
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[*4] Quisling did not issue petitioner a Form 1099-MISC, Miscellaneous Income
for amounts paid in any year 2003 through 2010. Dr. Quisling’s wife, Pamela
Quisling, has been the bookkeeper for Quisling since 1977.
Beginning in 2003 petitioner received payments from Quisling. The
payments were in the form of checks, and the date of the first check was March 15,
2003. From March 2003 through December 2010 Quisling made monthly
payments to petitioner.
Petitioner sent Dr. Quisling a memorandum entitled “Memorandum of
Understanding on Loan Terms and Conditions”. This memorandum states:
It has been revealed to me that the action of Blue Cross Blue Shield
of Tennessee, Inc., * * * has created a financial burden upon your
medical practice, because the medical services rendered by your
medical practice rely upon payment(s) received by BCBST.
Therefore, I am willing to develop a loan package * * * for the short-
range and long-range impact upon the delivery of medical services by
the “in-network-provider” as well as the “out-of-network provider”
* * *.
The memorandum further states “[a] reasonable expectation of this Memorandum
of Understanding on Loan Terms and Conditions is that the loan proceedings will
be based upon a) your ability to loan and b) the completion of the research which
will result in profit to the undersigned in order that the loan can be repaid.”1
1
The term “undersigned” refers to petitioner.
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[*5] This memorandum, dated April 1, 2003, includes the signature of petitioner
but not the signature of Dr. Quisling. Petitioner sent Dr. Quisling a followup letter
to the memorandum requesting a memorandum of acceptance. The memorandum
of acceptance includes a signature alleged to be Dr. Quisling’s, but this signature
is not his.
Petitioner did not make payments to Dr. Quisling. Neither Dr. Quisling nor
Mrs. Quisling demanded payment from petitioner.
On February 5, 2011, petitioner faxed Dr. Quisling a letter referencing an
alleged purchase of medical equipment that Quisling made from petitioner’s
deceased husband. On February 25, 2011, Dr. Quisling’s attorney and the attorney
for Quisling, Vincent Zuccaro, sent petitioner a letter stating that Quisling had not
purchased any equipment from her husband or received a gift of property from her
or her husband. That same day Dr. Quisling also sent petitioner a letter stating
that he would no longer see her as a patient. Petitioner faxed an additional letter
to Dr. Quisling on February 28, 2011. Mr. Zuccaro sent petitioner a letter in
response and reiterated that petitioner should not contact Dr. Quisling and Mrs.
Quisling.
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[*6] Petitioner faxed letters to Mr. Zuccaro on February 28, March 1, 2, 10, 14,
and 25, and April 11, 2011. In these letters, petitioner appeared to be trying to
reach some type of settlement with Quisling.
Petitioner for the years at issue made estimated income tax payments or had
tax withheld in the following amounts:
Year Amount
2002 $1,336
2003 1,107
2004 1,138
2005 1,293
2006 608
2007 -0-
2008 -0-
2009 -0-
2010 -0-
Respondent concedes that petitioner is not liable for an addition to tax
pursuant to section 6654 for tax year 2002.
OPINION
Petitioner has the burden of proving that respondent’s determination that the
amounts in issue are includible in gross income as compensation for services is
wrong. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,115 (1933). Petitioner
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[*7] has not claimed or shown that she meets the requirements of section 7491(a)
to shift the burden of proof to respondent as to any relevant factual issue. The
Commissioner bears the initial burden of producing at least minimal evidence
linking the taxpayer to the tax-generating activity or the receipt of funds before the
general presumption of correctness attaches to a determination of unreported
income. United States v. Walton, 909 F.2d 915, 919 (6th Cir. 2007). Once the
Commissioner meets the burden of production on this issue, the burden of
persuasion shifts to the taxpayer to produce credible evidence that he or she did
not earn the alleged income or of proving that the Commissioner’s deficiency
calculations were not grounded on a minimal evidentiary foundation. Id.Respondent’s determinations in the notices of deficiency are based in
substantive evidence linking petitioner with the income at issue. Included among
the stipulated exhibits were 2004 and 2005 canceled checks of payments to
petitioner. We are satisfied that respondent has carried his burden with respect to
the unreported additional income.
I. Income Received From Quisling
Compensation for services is included in gross income. Sec. 61(a)(1).
Money received pursuant to a loan is not included in gross income because there is
an obligation to repay. See Commissioner v. Tufts, 461 U.S. 300, 307 (1983). A
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[*8] bona fide loan requires both parties to have an actual, good-faith intent to
establish a debtor-creditor relationship when the funds are advanced. Fisher v.
Commissioner, 54 T.C. 905, 909-910 (1970). An intent to establish a debtor-
creditor relationship exists if the debtor intends to repay the loan and the creditor
intends to enforce the repayment. Beaver v. Commissioner, 55. T.C. 85, 91
(1970); Fisher v. Commissioner, 54 T.C. at 909-910.
Courts consider various factors to determine whether parties intended a
bona fide loan; no single factor is dispositive. See Welch v. Commissioner, 204
F.3d 1228, 1230 (9th Cir. 2000), aff’g T.C. Memo. 1998-121; Frierdich v.
Commissioner, 925 F.2d 180, 182 (7th Cir. 1991), aff’g T.C. Memo. 1989-393;
Kaider v. Commissioner, T.C. Memo. 2011-174, slip op. at 15-16. We examine
the following factors to determine whether payments to petitioner were loans:
(1) the ability of the borrower to repay;
(2) the existence or nonexistence of a debt instrument;
(3) security, interest, a fixed repayment debt, and a repayment schedule;
(4) how the parties’ records and conduct reflect the transaction;
(5) whether the borrower has made repayments;
(6) whether the lender had demanded repayment;
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[*9] (7) the likelihood that the loan was disguised compensation for services;
and
(8) the testimony of the purported borrower and lender.
See Welch v. Commissioner, 204 F.3d at 1230; Kaider v. Commissioner, T.C.
Memo. 2011-174.
A. The Ability of the Borrower To Repay
If the parties did not intend that the funds be repaid after they were
advanced, it suggests that the parties did not intend a bona fide loan. See
Commissioner v. Makransky, 321 F.2d 598, 600 (3d Cir. 1963), aff’g 36 T.C. 446(1961). Courts assess the ability to repay by whether there was “a reasonable
expectation of repayment in light of the economic realities of the situation.”
Fisher v. Commissioner, 54 T.C. at 910.
Petitioner contends that payments made by Quisling were loans. Petitioner
testified that she needed the money to fund the research for a book that she was
writing. However, petitioner produced no evidence of the book including the
potential for publishing the book or any other evidence of her ability to repay. Dr.
Quisling testified that the payments were not loans and that he did not expect to be
repaid.
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[*10] B. The Existence or Nonexistence of a Debt Instrument
There is a memorandum dated April 1, 2003, entitled “Memorandum of
Understanding on Loan Terms and Conditions” which discusses terms of the
alleged loans. This memorandum is signed by petitioner. There is a memorandum
entitled “Memorandum of Acceptance” which is not dated and which includes a
signature for Dr. Quisling. Both Dr. Quisling and Mrs. Quisling testified that the
signature on the “Memorandum of Acceptance” is not his signature. Dr. Quisling
testified that he had never seen the document before respondent’s counsel showed
it to him.
C. Security, Interest, a Fixed Repayment Date, and a Repayment
Schedule
The memorandum outlining the terms of the alleged loan states:
This Creative Reversal Installment Loan is based upon a 1.5% interest
and/or the fed rate as dictated by the Federal Reserve Board,
Washington, D.C. and therefore, activated whenever the interest rate
@1.5% and/or the fed rate is lower. Payback of the loan is predicated
upon the completion of topics within the medical science research and
only activated upon any completion a research project in which a
revenue stream is created.
There is no fixed repayment date or schedule. The provisions do not show the
intent to establish bona fide loans. Furthermore, these provisions are in a
document signed only by petitioner. Dr. Quisling testified that he had not seen the
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[*11] memorandum of understanding until respondent’s counsel showed him the
document.
D. How the Parties’ Records and Conduct Reflect the Transaction
Petitioner testified that the payments were loans for a book, but there was no
evidence to support this contention. Petitioner’s records of loans were not
credible. Petitioner did not submit a loan agreement signed by Dr. Quisling. Dr.
Quisling and Mrs. Quisling were credible witnesses. They contended the
payments were for services petitioner performed related to patient billing and
other financial aspects of medical practice. Quisling did not issue petitioner
Forms 1099-MISC. However, Quisling had no documentation to support loans to
petitioner.
E. Whether the Borrower Has Made Repayment
If the borrower has made repayment, it suggests that the parties intended a
bona fide loan. Welch v. Commissioner, 204 F.3d at 1231. Petitioner had not
made any payments.
F. Whether the Lender Has Demanded Repayment
A demand for repayment suggests that the parties intend a bona fide loan.
See Estate of Rosen v. Commissioner, T.C. Memo. 2006-115. Quisling has not
demanded repayment.
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[*12] G. The Likelihood That the Loans Were Disguised Compensation for
Services
Petitioner contends that the payments were loans to finance the cost of
research for her book. Dr. Quisling and Mrs. Quisling provided credible
testimony that the payments were made for services. The memorandum describing
the alleged loans discusses the development of a microeconomic and
macroeconomic model that will impact the short-range and long-range delivery of
medical services.
Dr. Quisling and Mrs. Quisling testified that petitioner assisted with a Blue
Cross Blue Shield audit, billing issues, and lease agreements. Dr. Quisling
testified that petitioner was “discharged” in February 2011 because she asked for
documentation to buy equipment from her and she refused to provide information
such as her full name and Social Security number. Petitioner contends that she
must be “magical” if she was able to perform the services described by Dr.
Quisling and Mrs. Quisling.
H. Testimony of the Purported Borrower and Lender
Petitioner testified the payments were loans, but she had no credible
supporting documentation. Petitioner testified that she sent Dr. Quisling a letter
dated April 1, 2003, providing guidance for the audit with Blue Cross Blue Shield.
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[*13] Petitioner testified that the Internal Revenue Service audited Quisling’s
returns in 2010 and not until then was there a request for her to fill out a Form
W-9, Request for Taxpayer Identification Number and Certification.
Dr. Quisling and Mrs. Quisling testified the payments were for services, and
they provided credible testimony. Dr. Quisling testified that petitioner was paid
$10,000 in 2003 to assist with Blue Cross Blue Shield of Tennessee. He further
testified that after the successful outcome of the audit, petitioner resolved other
insurance disputes, assisted with credentialing committees, produced ideas for
advertising and business development, negotiated a dispute with Summit Hospital,
resolved a dispute with a new landlord, and confronted Humana Insurance in
Lexington, Kentucky. Mrs. Quisling testified that petitioner was paid $3,000 a
month for her services and the payments increased to $4,000 a month.
Dr. Quisling testified that he asked petitioner to provide her Social Security
number in late 2010 and she refused. Dr. Quisling stopped paying petitioner in
December of 2010. On February 18, 2011, Dr. Quisling terminated petitioner as a
patient.
Dr. Quisling and Mrs. Quisling testified that Quisling did not purchase any
equipment from petitioner’s deceased husband and that petitioner requested
information about the alleged purchases in February of 2011.
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[*14] Petitioner testified that she received loans from Dr. Quisling to write a
book. Her testimony was inconsistent and she submitted a letter referencing that
Dr. Quisling purchased equipment from her deceased husband.
II. Conclusion
We conclude that the payments Quisling made to petitioner in tax years
2003 through 2010 are included in petitioner’s gross income as compensation for
services. There is no evidence of an actual, good-faith intent to establish a debtor-
credit relationship. Dr. Quisling did not have a good-faith intent to enter a loan
agreement.
III. Additions to Tax
A. Section 6651(a)(1)
Section 6651(a)(1) authorizes the imposition of an addition to tax for failure
to file a timely return unless the taxpayer proves that such failure is due to
reasonable cause and is not due to willful neglect. See United States v. Boyle, 469
U.S. 241, 245 (1985); Harris v. Commissioner, T.C. Memo. 1998-332. The parties
stipulated that petitioner did not file income tax returns for tax years 2002 through
2010. This stipulation is sufficient to satisfy respondent’s burden of production
under section 7491(c). Petitioner did not show reasonable cause for her failure to
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[*15] file tax returns. Therefore, petitioner is liable for the addition to tax under
section 6651(a) for each of those years.
B. Section 6651(a)(2)
Section 6651(a)(2) imposes an addition to tax for failure to timely pay the
amount shown on a return. In a case such as this where the taxpayer did not timely
file returns for the tax years at issue, the Commissioner must introduce evidence
that a valid substitute for return was made pursuant to section 6020(b). Sec.
6651(g)(2). The parties stipulated that substitutes for returns were prepared in
accordance with section 6020(b). Petitioner did not show reasonable cause for her
failure to file tax returns.
We hold that petitioner is liable for the addition to tax under 6651(a)(2) for
each of tax years 2002 through 2010.
C. Section 6654
Section 6654 imposes an addition to tax on an individual taxpayer who
underpays his or her estimated tax. A taxpayer has an obligation to pay estimated
tax for a particular year if he or she has a “required annual payment” for that year.
Sec. 6654(d). Because petitioner failed to file a return for each year in issue from
2003 through 2010, she was required to pay estimated tax equal to 90% of the tax
owed for each of those years. See sec. 6654(d)(1)(B). Petitioner failed to make
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[*16] those payments, and no exception to the addition to tax under section 6654
applies. See Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980).
We hold petitioner is liable for the addition to tax under section 6654 for
each of tax years 2003 through 2010.
Any contentions we have not addressed are irrelevant, moot, or meritless.
To reflect the foregoing,
Decision will be entered
under Rule 155.