DocketNumber: No. 8934-00
Citation Numbers: 2004 T.C. Memo. 202, 88 T.C.M. 212, 2004 Tax Ct. Memo LEXIS 208
Judges: \"Jacobs, Julian I.\"
Filed Date: 9/2/2004
Status: Non-Precedential
Modified Date: 11/21/2020
Respondent's computation of petitioner's unreported income sustained. Petitioner was liable for deficiencies in federal income taxes, as well as additions to tax under sections
MEMORANDUM FINDINGS OF FACT AND OPINION
JACOBS,
Additions to Tax | ||||
Sec. | Sec. | Sec. | ||
Year | Deficiency | 6651(a)(1) | 6651(a)(2) | 6654 |
1991 | $28,490 | $7,123 | no | $1,628 |
1992 | 31,638 | 7,910 | no | 1,380 |
1993 | 38,905 | 9,726 | no | 1,630 |
1994 | 55,193 | 13,798 | no | 2,864 |
1994 | 53,544 | 13,386 | no | 2,903 |
1996 | 58,938 | 13,261 | yes n.1 | 3,137 |
1997 | 63,330 | 14,249 | yes n.1 | 3,388 |
n.1 Sec.
*209 Respondent concedes that petitioner is not liable for the addition to tax under section
1. Whether the notice of deficiency is invalid because respondent did not prepare a substitute for return for each of the years at issue; and
2. if the notice of deficiency is valid, then (a) whether respondent properly reconstructed petitioner's business income using the bank deposits method; and (b) whether petitioner is liable for the additions to tax under sections
FINDINGS OF FACT 2
Petitioner resided in Ormond Beach, Florida, *210 at the time the petition in this case was filed.
During 1991-97, petitioner was in the insurance business. He received the following income from commissions, interest, dividends, and capital gain:
Year | Commissions | Interest | Dividends | Capital Gain |
1991 | $163,912 | $438 | -- | -- |
1992 | 157,399 | 220 | -- | -- |
1993 | 230,581 | 173 | $16 | -- |
1994 | 215,378 | 177 | 20 | -- |
1995 | 221,021 | 166 | 142 | -- |
1996 | 261,240 | 131 | 1,424 | $5,953 |
1997 | 342,891 | 118 | 2,157 | 9,551 |
Petitioner filed Federal income tax returns for all years before 1991. He did not file returns for 1991-2001. Petitioner did not make estimated tax payments for 1991-97, and no tax was withheld with respect to any income petitioner earned during those years.
In June 1998, the Internal Revenue Service began examining petitioner's records in order to determine petitioner's income tax liabilities for the years at issue. Petitioner refused to meet with the examination officer. In addition, he refused to provide the examination officer with books, records, or any other information, and he attempted to prevent the examination officer from obtaining information from*211 third parties. During the examination, petitioner asserted his
The examination officer reconstructed petitioner's insurance business income using the bank deposits method. The examination officer allowed petitioner a deduction for estimated insurance business expenses equal to 54.77 percent of his commissions based on the Statistics of Labor Bulletin, Sole Proprietorship Returns, 1994, Table 2.--Nonfarm Sole Proprietorships: Income Statements, by Selected Groups: Insurance agents and brokers (statistics for insurance agents).
On the basis of the examination officer's reconstruction of petitioner's income, respondent determined deficiencies in petitioner's Federal income tax for 1991-97 and issued a notice of deficiency for those years dated May 24, 2000.
On August 21, 2000, petitioner timely filed a petition in this Court requesting that we "dismiss the NOD [notice of deficiency] for lack of jurisdiction" on the alleged ground it "lacks any ligament or tendon of fact, is clearly arbitrary and capricious and no real determination of deficiency has been made by any authorized IRS employee." On September 29, 2000, petitioner filed*212 an amended petition claiming that respondent's determination that he had taxable income in the amounts stated in the notice of deficiency was in error. In the amended petition, petitioner asserted that the notice of deficiency was invalid because "the Internal Revenue Service failed to execute an involuntary return as required by the IR Code."
On October 5, 2001, the Court sent the parties a notice setting the case for trial at the trial session of the Court in Jacksonville, Florida, beginning on March 11, 2002. Accompanying that notice was the Court's Standing Pre-Trial Order, which states in pertinent part as follows: You are expected to begin discussions as soon as practicable for purposes of settlement and/or preparation of a stipulation of facts. Valuation cases and reasonable compensation cases are generally susceptible of settlement, and the Court expects the parties to negotiate in good faith with this objective in mind. All minor issues should be settled so that the Court can focus on the issue(s) needing a Court decision. * * * * * * * If difficulties are encountered in communicating with another party, or in complying with this Order, you should promptly*213 advise the Court in writing, with copy to each other party, or in a conference call among the parties and the trial judge. If any unexcused failure to comply with this Order adversely affects the timing or conduct of the trial, the Court may impose appropriate sanctions, including dismissal, to prevent prejudice to the other party or imposition on the Court. Such failure may also be considered in relation to disciplinary proceedings involving counsel. See To effectuate the foregoing policies and an orderly and efficient disposition of all cases on the trial calendar, it is hereby 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
Petitioner served on respondent a document entitled "Interrogatories, Requests for Admission and Production of Documents". On October 10, 2001, respondent filed a motion for protective order. On October 11, 2001, we issued an order granting respondent's motion, in which we stated: The attachment to respondent's motion, which includes a copy of a document that petitioner served on respondent, entitled "Interrogatories, Requests for Admission and Production of Documents", contains contentions and/or statements by petitioner that the Court finds to be groundless and/or frivolous. The Court reminds petitioner that section Whenever it appears to the Tax Court that -- (A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay, (or) (B) the taxpayer's position in such proceeding is frivolous or groundless, * * * the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000. In the event that petitioner continues to advance frivolous and/or groundless contentions and arguments, the Court will be inclined to impose a penalty not in excess of $25,000 on petitioner under section
In an order dated February 4, 2002, the Court granted a similar motion by respondent for a protective order. In that order, petitioner was again cautioned that the Court would be inclined to impose a penalty under section
In December 2001, respondent served petitioner with interrogatories and requests for the production of documents and admissions. Petitioner's answers to respondent's requests for production of documents, interrogatories, and admissions indicated*216 that he was asserting his
On October 10, 2002, the Court sent the parties a notice setting this case for trial at the trial session of the Court in Jacksonville, Florida, beginning on March 3, 2003. Accompanying that notice was the Court's Standing Pre-Trial Order.
On January 9, 2003, petitioner filed a motion for summary judgment in which he asserted that he was entitled to judgment as a matter of law because respondent failed to prepare substitutes for returns. In respondent's response to petitioner's motion for summary judgment, respondent, citing
The trial in this case was held in Jacksonville, Florida, on March 4, 2003. Petitioner took the stand but refused to testify as to any facts relevant to his Federal income tax liabilities. Petitioner stated that he feared that any statements he might make could be used by the Government in a subsequent criminal trial. Petitioner refused to answer the sole question asked on cross-examination, asserting his
Respondent called several witnesses who established that, during the years at issue, petitioner received substantial commissions from various insurance companies. Respondent introduced bank records to establish the total amounts that petitioner had deposited in his bank accounts. Respondent called Revenue Agent Glenn Dugger, who was not involved in the original*218 examination of petitioner's income, to testify how petitioner's income was reconstructed using the bank deposits method. 3 Revenue Agent Dugger had reviewed the original bank deposits analysis and concluded that, giving petitioner the benefit of the doubt, more of the deposits should have been treated as nonincome transfers between accounts. He deducted those deposits from the total deposit amount. Revenue Agent Dugger calculated petitioner's insurance business expenses at 54.77 percent of his commissions on the basis of the Department of Labor statistics for insurance agents. Revenue Agent Dugger calculated petitioner's insurance commissions and expenses for the years at issue to be as follows:
Year | Commissions | Expenses |
1991 | $163,912 | $89,775 |
1992 | 157,399 | 86,208 |
1993 | 230,581 | 126,289 |
1994 | 215,378 | 117,962 |
1995 | 221,021 | 121,053 |
1996 | 261,240 | 143,081 |
1997 | 342,891 | 187,801 |
*219 Petitioner did not challenge Revenue Agent Dugger's reconstruction of his income.
OPINION
Petitioner's primary contention is that the notice of deficiency is invalid because respondent did not prepare a substitute for return for each of the years at issue. We disagree.
If the Secretary determines a deficiency in income tax, he is authorized to send to the taxpayer a notice of deficiency by certified or registered mail before assessing the deficiency. Secs.
Where a taxpayer fails to file a return, section
As section
Petitioner argues that section
Petitioner, having failed to file Federal income tax returns for 1991-97, was sent a notice of deficiency by certified or registered mail signed by the District Director. The notice unquestionably meets the minimum requirements; respondent properly "determined" the*222 deficiency within the meaning of section
We see no need to catalog petitioner's remaining arguments, covering topics ranging from communism to separation of church and state, and painstakingly address them. As the Court of Appeals for the Fifth Circuit has remarked: "We perceive no need to refute these arguments with somber reasoning and copious citation of precedent; to do so might suggest that these arguments have some colorable merit."
Taxpayers bear the responsibility to maintain books and records that are sufficient to establish their income. Sec.
Respondent employed the "bank deposits method" of reconstructing petitioner's income for the years at issue as a means of calculating his tax liability. A bank deposit is prima facie evidence of income, and the "use of the bank deposits method for computing unreported income has long been sanctioned by the courts."
The Commissioner need not show a likely source of the income when using the bank deposits method, but the Commissioner must take into account any nontaxable items or deductible expenses of which the Commissioner has knowledge.
*225 Given that petitioner failed to file Federal income tax returns for the subject years, and that he refused to cooperate with the examination officer in the audit of his Federal income tax liability for those years, we consider it proper for respondent to reconstruct petitioner's income for the subject years using the bank deposits method. Revenue Agent Dugger adequately explained how petitioner's income was computed. Petitioner had an opportunity to show error in respondent's computations, e.g., that some or all of the deposits represented nontaxable income and/or he was entitled to additional deductions, but he failed to take advantage of that opportunity.
Petitioner did not present at trial even a scintilla of evidence to prove error in respondent's computations. Petitioner chose, instead, to assert the
In view of all the evidence, we hold that resort to the bank deposits method was necessary to determine petitioner's income for the taxable years involved and that respondent properly applied this method in determining that income. Therefore, we sustain Revenue Agent Dugger's computation of petitioner's unreported income.
2. a.
Section
Petitioner never asserted or presented any evidence indicating that he filed one or more of the required returns. Nor did he establish reasonable cause for his failure to do so. Consequently, we hold that petitioner is liable for the addition to tax under section
b.
Section
For the foregoing reasons, we hold that petitioner is liable for deficiencies in Federal income taxes, as well as additions to tax under sections
C.
The Court may impose on a taxpayer a penalty of up to $25,000 if the taxpayer instituted or maintained proceedings primarily for delay, if the taxpayer's position is frivolous or groundless, or if the taxpayer unreasonably failed to pursue administrative remedies. Sec.
A review of the record in this case convinces us that petitioner's position in this proceeding is both frivolous and groundless and that petitioner maintained and prolonged these proceedings primarily for delay. In so ruling we take into account all aspects of petitioner's conduct in this case.
Petitioner's initial petition lacks any explanation of the basis of his disagreement with respondent and fails to comply with
Rather than heed the warning of the Court, petitioner elected to continue to proceed with time-worn tax protester rhetoric. He filed his motion for summary judgment claiming that respondent's failure to file substitutes for returns invalidated the notice of deficiency and, consequently, he was entitled to judgment as a matter of law. In respondent's response to petitioner's motion for summary judgment, respondent cited
Petitioner unreasonably prolonged the proceedings by serving on respondent and filing with the Court repetitious, groundless, and frivolous documents. Petitioner was not interested in disputing the merits of the deficiencies or the additions to tax. Sua sponte, the Court holds that petitioner must pay a penalty under section
Petitioner's
The Court's time and resources have been wasted. Petitioner was specifically warned by the Court of the likelihood of a penalty under section
The amounts of the deficiencies resulting from the corrected amounts of petitioner's business income as conceded by respondent using Revenue Agent Dugger's computations will be calculated pursuant to a
Accordingly,
1. Section references are to the Internal Revenue Code in effect for the years at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar.↩
2. Petitioner refused to execute a stipulation of facts. In his answering brief, petitioner did not object to any of respondent's requested findings of fact and did not offer any of his own. The record amply supports respondent's requested findings. Consequently, respondent's requested findings of fact are incorporated herein.↩
3. The examination officer who originally conducted the bank deposits analysis had retired on disability following a stroke and was unavailable to testify at the trial in this case.↩
4. Sec.
Michael J. Geiselman v. United States of America, Michael J.... , 961 F.2d 1 ( 1992 )
Joseph R. Dileo, Mary A. Dileo, Walter E. Mycek, Jr., ... , 959 F.2d 16 ( 1992 )
Bruce K. Price, as Administrator of the Estate of A. M. ... , 335 F.2d 671 ( 1964 )
Glenn Crain v. Commissioner of Internal Revenue , 737 F.2d 1417 ( 1984 )
United States v. James E. Stafford , 983 F.2d 25 ( 1993 )
Irwin A. Schiff v. United States , 919 F.2d 830 ( 1990 )
James Traficant, Jr. v. Commissioner of Internal Revenue ... , 884 F.2d 258 ( 1989 )
John E. Hansen Imelda M. Hansen v. Commissioner of Internal ... , 820 F.2d 1464 ( 1987 )
Clarence W. Steinbrecher and Jeannette D. Steinbrecher v. ... , 712 F.2d 195 ( 1983 )
Norman E. Coleman v. Commissioner of Internal Revenue, Gary ... , 791 F.2d 68 ( 1986 )
Bolen Webb and Cornelia Webb v. Commissioner of Internal ... , 394 F.2d 366 ( 1968 )
Thomas A. Tweeddale v. Commissioner of Internal Revenue , 841 F.2d 643 ( 1988 )
United States v. Mathnay (Harvey Ernest) , 956 F.2d 1168 ( 1992 )
mallette-bros-construction-co-inc-v-united-states-of-america-gautier , 695 F.2d 145 ( 1983 )
United States v. Boyle , 105 S. Ct. 687 ( 1985 )
charles-a-roat-v-commissioner-internal-revenue-service-alaska-usa , 847 F.2d 1379 ( 1988 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Laing v. United States , 96 S. Ct. 473 ( 1976 )
United States v. Rylander , 103 S. Ct. 1548 ( 1983 )